Agneta Gustafson

1
Norms and practices
- Accounting
in non-profit organizations

• Agneta Gustafson
• Phd. Assistant Professor
• Örebro University
• Department of Business, Economics, Statistics
  and Informatics (ESI)

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Goal-Mean-matrix

Business
Non-profit
Money Activities
Activities Money
Goal
Mean
3
Resources

• The input of resources can be
• money,
• material gifts or
• voluntary work.

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Pilotstudie

• The financial reports for 1997 of 39 private
  non-profit organizations were studied.
• There were similarities but also clear
  differences between them and the GAAP used in
  commercial accounting

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Three private non-profits of different kinds

• An international relief organization, the Swedish
  Red Cross
• A labour union (within medical care),
  Vårdförbundet
• An educational association (within athletics),
  SISU Örebro Län

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The size of the three non-profits

• Balance sheet
  Total turnover
• SRC 1.300 Millions SEK 536 Millions SEK
• VF 200 Millions SEK 177 Millions SEK
• SISU 0,2 Millions SEK 7
  Millions SEK

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A comparison, 1998
536 Turnover
SRC
1300 Balancesheet total
177 Turnover
SISU
200 Balance sheet total
VF
7
0,2
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The purpose

• how non-profits account for their activities and
  their financial position to their external
  interest groups
• what lies behind their accounting practices.

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The following were the main findings in how they
give account

• The main purpose of the annual reports of these
  private non-profits is to give an account of the
  use of their resources. The financial reports
  show how they have used their monetary resources.

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• Their income statements look like income reports
  of business organizations, but are more like a
  report of a financial flow. They tell the
  difference between resources received and costs
  incurred during a specific accounting period.
• A verbal story is needed to give an account for
  their performance. To measure the efficiency of
  their activities is very difficult. They talk
  more about doing the right things.

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• Voluntary work is a critical resource. None of
  the associations studied gave an account for how
  they economize these resources.
• Accrual accounting is important. They must apply
  accrual accounting in order to give an account
  for the cost of different projects during one
  accounting period.
• Accrual accounting meets the need of information
  for reporting how earmarked resources are used.

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• Conservatism is not a relevant principle for
  these non-profit organizations. When the purpose
  of the operation is not to make a profit, a
  conservative measuring of the difference between
  resources received and costs during a specific
  year has no meaning.
• The matching concept is applied in a backward way
  in the associations compared to commercial
  accounting. Instead of matching expenses to the
  revenues generated, revenues are matched to the
  expenses they made possible.

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• The capital of these private non-profits can be
  defined as
• the funds received by the organization that as
  of the closing day have not been paid out and
  where there are no legal obligation.
• The capital is to be used and not collected in a
  pile and can therefore be looked upon as a
  moral obligation both toward the donors of
  resources and towards those who are the
  objectives of the goals for the activities.

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Institutional Isomorphism

• Coercive Isomorphism
• Mimetic Processes
• Normative Pressures

Resource Dependence Theory The influence from
resource dependence on accounting practices
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• To what extent were institutional isomorphism
  and resource dependence determining the
  accounting practices in these private non-profits?

When did institutional isomorphism and when did
resource dependence determine the accounting
practices ?
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This part of the study indicated four things

• 1. These private non-profit organizations have
  imitated conventional accounting norms for
  business organizations (under mimetic and
  normative isomorphic pressure) when the issues
  had no direct influence on future resources.

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• 2. They diverged from commercial accounting norms
  and practices and showed their distinctive
  character in that they created ways of presenting
  information methods according to what was needed
  by their interested parties when the issues could
  influence future flow of resources.

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• 3. When they used other channels than their
  annual reports communicating with their
  supporters, the accounting practices did not
  influence future resources. Then they applied
  commercial accounting norms, since their
  accounting practices did not influence incoming
  resources.

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• 4. When they used their annual reports in
  planning for future obligations and in internal
  follow up, the accounting practices were also
  influenced by internal claims.

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Interpreting

• The concept of expense - performance (since the
  activities are the goal and the outcome of the
  activities is the result).
• The concept of net income - obligations or
  liabilities
• (since the capital in non-profits is to be used
  and not to be kept in the organization)

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Relevance

• What information is relevant in the reports from
  a non-profit organization?

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Comparability

• Who wants to compare the Swedish Red Cross with
  Volvo?

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• A conceptual framework
• - Developed for the needs of private non-profit
  organizations?