Large Charities' Financial Reporting Framework Choice in Australia

Abstract

Our study informs the current debate around financial reporting framework choice by examining factors associated with whether large charities produce General Purpose Financial Statements (GPFS) or Special Purpose Financial Statements (SPFS). For those producing GPFS, we further examine whether these charities report in accordance with the complete set of Australian Accounting Standards (Tier 1) or Reduced Disclosure Requirements (Tier 2), as per AASB 1053. Using manually-collected data from 7,637 large-registered charities, we find that while revenue concentration, total revenue, donation income, deductible gift recipient endorsement and total liabilities are significant in explaining charities producing GPFS, around 88 percent of the variation could not be explained by a model containing eight measures of the three indicative factors from the Statement of Accounting Concepts (SAC) 1. Further, we find significant variation across different industry sectors and types of audit providers in factors explaining charities’ decisions to produce GPFS versus SPFS. For those that lodge GPFS, we find that the model has very little explanatory power for choice of GFPS Tier 1 versus Tier 2. For the comparison of SPFS versus GPFS-Tier 2, charities are more likely to be audited by a Big 4 or a mid-tier audit firm, and have a greater spread of ownership, a higher economic importance, and a higher level of indebtedness. Our results inform charities and accounting firms in factors influencing their choice of financial reporting frameworks, and the AASB and the ACNC in their current review of reporting frameworks.