Abstract
California’s passage of the Nonprofit Integrity Act in 2004, followed by the enactment of similar legislation in other American states, has resulted in a series of new financial reporting requirements for many larger nonprofit organizations. Chief among the provisions of several of these legislative pieces is the requirement for nonprofit entities to form separate audit committees. Following the lead established in the for-profit sector, advocates have strongly urged nonprofit organizations to include at least one financial expert among audit committee members to augment actual and perceived financial reporting integrity. However, advocates’ acknowledgement of the challenge of recruiting these individuals leads one to question their ultimate worth to nonprofit organizations. Recognizing the significance of this issue, this study investigates individual donors’ impressions regarding the inclusion of financial experts among nonprofit audit committee members. Using an experimental case as the basis for exploration, the study finds that donors generally do not perceive financial experts as enhancing the credibility of nonprofit organizations’ financial statements. In light of the significance of individual donor contributions to entities’ continued financial sustainability, these findings represent potentially important considerations for nonprofit organizations as they weigh the costs and benefits of enlisting busy financial professionals for audit committee service.
Highlights
Introduction and BackgroundA new era of financial reporting for publicly traded companies began when the United States Congress passed the Sarbanes-Oxley Act (SOX) a decade ago
Chief among the provisions of the Nonprofit Integrity Act and its legislative siblings is the requirement for larger nonprofit organizations to create a separate audit committee (Neely, 2011; Grant Thornton, 2010; Board Source and Independent Sector, 2006)
Advocates have maintained that nonprofit audit committees, like their for-profit counterparts, should include at least one committee member with financial expertise, current legislation does not mandate such a requirement (Grant Thornton, 2010; Board Source and Independent Sector, 2006)
Summary
A new era of financial reporting for publicly traded companies began when the United States Congress passed the Sarbanes-Oxley Act (SOX) a decade ago. SOX exempts nonprofit organizations from all but two of its provisions (mandated written whistle-blowing and document retention policies), advocates began to call for entities’ voluntary adoption of many of the legislation’s requirements shortly after its passage (Neely, 2011; Grant Thornton, 2010; Board Source and Independent Sector, 2006). Advocates have maintained that nonprofit audit committees, like their for-profit counterparts, should include at least one committee member with financial expertise, current legislation does not mandate such a requirement (Grant Thornton, 2010; Board Source and Independent Sector, 2006). The difficulty that nonprofit organizations would likely face in recruiting financial experts for audit committee service leads one to question their potential value to the nonprofit financial reporting process While they may greatly aid an organization in its oversight responsibilities of the audit process, financial experts’ ability to augment the perceived integrity of nonprofit organizations’ financial reporting remains less clear. The paper concludes with a delineation of the study’s limitations and implications
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
