An inside look at not-for-profit accounting

A highlight of Carolyn Cordery FCPA’s career has been playing an active role in introducing not-for-profit accounting standards in New Zealand. Photo: Ross Vincent.

Professor Carolyn Cordery FCPA is an expert in the accounting and accountability of not-for-profit organisations, and explains what drives her research and where the sector is headed.

At a glance

  • Professor Carolyn Cordery FCPA's role in the accounting and accountability of not-for-profits stems from a love of learning and a personal interest in charity work.
  • A highlight of Cordery’s career has been her role in lobbying for and introducing not-for-profit accounting standards in New Zealand in April 2015.
  • She believes the AASB’s move to remove the ability to lodge Special Purpose Financial Statements will improve the accountability of Australian charities.

By Jessica Mudditt

Professor Carolyn Cordery FCPA’s earliest “accounting memory” is standing at a bank counter in her high school uniform as she was signing herself up to be the treasurer of a youth society. By the time she was 21, she was an accounting student at Massey University in Wellington, New Zealand.

A love of learning has been a mainstay throughout her career, and she remains on campus today, albeit some 20,000 kilometres from her home in Wellington. Cordery is a professor of accounting at Aston University in Birmingham, a position she took up in 2017.

“Most of my academic career had been at one university [Victoria University in Wellington] and I felt it was a good time to explore how universities in the UK work – I went from an environment where there are eight universities to one where there are more than 130.”

Aston University appealed to Cordery because of its extensive research into accountability and not-for-profit and public sector entities. This complements her own research in how not-for-profit organisations are resourced and how resource constraints result in many being financially vulnerable. Part of the UK’s appeal was its long history of charities research. Cordery had already worked with some of its researchers, including a four-month stint at Sheffield Hallam University in 2011, and a month at Queen’s University Belfast in 2016.

She is also associate editor of Accounting History and British Accounting Review, and is active in other societies, such as the Voluntary Sector Studies Network and the International Society of Third-Sector Research, where she brings her accounting skills to bear as treasurer.

While she says light-heartedly not to ask her about her to-do list, she adds that she is a great believer that “we all make time for things we enjoy doing”.

“I enjoy research and helping the sector, so it all gets squeezed in somehow.”

Cordery has a personal and lifelong interest in the not-for-profit sector. Her father was a Methodist minister and she was involved in volunteering early in her life. She was a member of the international and interdenominational Christian youth organisation, the Girls’ Brigade, and served as one of its leaders in her late teens and early 20s. However, she pursued a career as a sharebroker before taking time off and working fewer hours while caring for her two young children.

“When I returned to study I recognised that what really interested me was the not-for-profit sector. I stated that in my master’s interview. The head of the program [who is now Professor Keitha Dunstan, deputy vice chancellor (academic) at Bond University] researched primarily in capital markets, but thankfully she didn’t bat an eyelid and accepted me into the program.”

Cordery with fellow delegates at the International Society for Third-Sector Research’s Asia Pacific Conference in 2017. Image courtesy ISTR.

Setting standards in New Zealand

A highlight of Cordery’s career has been playing an active role in introducing not-for-profit accounting standards in New Zealand. She was a member of groups that lobbied for the introduction of standards that could accommodate the sector, and then helped bring sector-specific standards to fruition from April 2015 as a member of the New Zealand Accounting Standards Board (NZASB).

The benefit of standards written with the sector in mind is twofold, she says.

“Firstly, context matters and the sector has specific transactions, such as donated assets and non-exchange revenue, that need to be accounted for in a coherent way. Second, the wide disparity in size of entity, and therefore the ability to report, can be dealt with.”

New Zealand has simple-format reporting standards for smaller entities that Cordery says can hopefully be complied with by someone doing their accounts on the kitchen table.

“When you stand back and think about the teams that you’ve worked with and the shared goals you have achieved, it’s incredibly rewarding,” she says.

“Some of these things take a long time and you can’t really believe it when they happen.”

Cordery says that working with people has been one of the enduring highlights of her career, while at the same time being one of her biggest challenges.

“There’s a Maori proverb [He tangata, he tangata, he tangata], which means, ‘It is the people, it is the people, it is the people’. That’s what I love about this work.

“But people have also been my biggest challenge. When people don’t work well together or when you delegate something and it doesn’t happen, it’s difficult. For me it’s been about learning how to work with people better. That means getting people to do things that they love doing and are willing and able to do.”

No easy answers

Cordery thrives on the intellectual stimulation of examining the many hard questions that are thrown up by accountancy for not-for-profits. Perhaps the biggest is also one that is inherent: trying to balance an entity’s overarching purpose with financial realities. She offers an anecdote to illustrate how sensitive a task it can be.

“I had a colleague who was asked to help a church-based social services organisation by joining its board. He advised the Christian ministers that the church’s assets should be sold off and the money invested. They very quickly moved him off the board because he had a rational economic approach that focused on the best use of the money, whereas the church had a mission: it wanted to be involved in educare.”

Ultimately, she says that in the not-for-profit sector, the mission must always take precedence, but it must be balanced with financial sustainability.

Future forecasts

In May 2019, the Australian Accounting Standards Board (AASB) indicated that it will remove the ability to lodge Special Purpose Financial Statements (SPFS), which will impact all types of not-for-profit entities. At the moment, not all accounting standards are adopted in SPFS – only those determined to be relevant to specific users.

Cordery backs the change, saying it is overdue.

“Australia is the only country in the world that allows reporting entities to choose whether or not they should produce general purpose financial reports. It’s certainly an unusual situation and as a Kiwi, I think it’s very strange that you can have entities that are on a public register but claim not to have any external users.”

The situation in Australia came about 30 years ago (with SAC1); during that time, sentiment has changed about how regulators can better provide differential reporting exemptions for smaller entities, she says.

Generally, standard-setters now balance the costs and benefits of financial reporting by disclosure exemptions for these entities (as in the UK and New Zealand) or through “small-GAAP” such as the IFRS for SMEs. The pervasiveness of the internet means that a report that was once tucked away in a filing cabinet is now public (rather than special purpose) knowledge.

"For me it's been about learning how to work with people better. That means getting people to do things that they love doing and are we willing and able to do."

“It will make people realise that when they produce financial reports that are on a public register, they are publicly accountable. Anybody – including donors, the government and funders – can look at the reports. Surely this proposed change will increase transparency and accountability because it’s saying that there are certain legal standards that must be met.”

Cordery says that begrudging the idea of another layer of compliance is unjustified.

“Some people might throw their hands up and say, ‘Goodness, we have to comply with something else’. However, I would say to that: those who report publicly in other countries already have to do it. If you’ve got an issue with the [detail of the] standards, deal with that as a different thing.”

However, she says that although the UK’s not-for-profit sector has been regulated for longer, with England and Wales having a charity regulator since 1860, the sector itself isn’t necessarily more developed than Australia and New Zealand. Like Australia, the UK also has different regulators. 

“The long history of financial reporting would be a big difference: I do think people look to the UK for that, but the challenges and issues are similar.”

Too many charities?

Cordery with Phi Anh at the International Conference on Accounting and Finance in 2018.Even a question that appears relatively straightforward, such as whether Australia has too many charities and not-for-profits, does not have a simple answer. 

“We have the same conversation in New Zealand and the UK. My answer is both yes and no.” 

She says charities can be local and specific in focus, compared with others that are national or international.

“After the Manchester Arena bombings [of 2017], there was a huge outpouring of grief. It was obviously horrendous and some families, especially those with small children who had been killed or seriously hurt, set up their own charities in the victims’ names out of a desire to do good.”

Australia’s umbrella bodies could perhaps work together to achieve better integration of such small charities, she says, but would not be drawn on whether there are simply too many charities.

“Those charities may peter out in 10 years, but who am I to say that someone shouldn’t express their emotions in that way, or that they shouldn’t be prepared to give their time and money to a particular issue?”

Social impact investing

The role of social impact investing raises tricky questions. It is a huge sector, but some are divided about its merits.

“Some people think it’s a great idea. They can invest in a social bond, and that money is repaid and can be reinvested in something else of social benefit. Some of the rhetoric out there is about it increasing the amount of money available to the not-for-profit sector because of this repayment cycle.”

However, case studies have demonstrated that there are complex ethical issues.

“If a not-for-profit has a great idea to reduce recidivism, for example, then to finance that through a social impact bond, they will work with a target population and measure the results against a control group that does not have the intended intervention. Now, if recidivism is reduced dramatically with the target population, why should the control group miss out on the intervention?”

This was an issue with the UK’s Peterborough Prison Social Impact Bond, which was cut short in 2014, as the then minister of justice decided the successful intervention should be rolled out to more prisons.

Cordery says that it is understandable that investors need charities to meet certain metrics to determine whether a measurable impact has been made, but measuring such criteria is often highly complex.

“Something like recidivism in a prison population is a very difficult thing to measure. You might do everything, but a person might still re-offend. We all know that reducing the  really wicked problems in the world takes a very long time.”

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