Whilst providing financial reports might seem like an onerous task for smaller charities, it can help your organisation run more efficiently with clear financial direction and records. Managing finances well is key to the success of any business, including nonprofits.
With nonprofit accounting rules differing from regular businesses, it can be challenging to understand what’s expected. This guide shares the ins and outs of charity financial reporting to ensure that you’re compliant.
There are legal financial reporting requirements for nonprofits, designed to keep track of where income is being spent. Not only is this a legal requirement, but it can also provide reassurance to donors, encouraging them to provide more support when they can see where the money is being spent and that it’s benefitting the intended cause.
Nonprofit organisations are required, by law, to provide a trustees’ annual report every year. The purpose of this report is to provide insight into a charity’s activities and financial position. This is not only for accounting purposes, but also to give funding bodies a view into where charitable contributions are being spent. All charities must also prepare annual accounts and keep accounting records up to date.
However, these financial reporting requirements aren’t always successfully met, with the Charity Commission for England and Wales finding that only 55% of accounts were of acceptable quality when examining a sample. This is where charity accounting software can be hugely beneficial as it keeps track of your financials throughout the year, making it much easier to pull together accurate financial reports when required. This can provide peace of mind throughout the year that accounts are taken care of.
All charities are required to report their income and expenditure every year: to keep accounts updated and inform the general public and funding bodies of their work throughout the year. However, as a nonprofit organisation’s income increases, more financial reports are required in order to keep track of finances.
Below are the requirements for the different income bands:
£10,000 - £25,000
Nonprofit organisations must provide certain financial statements, which can differ from standard business accounting:
Things could be set to change thanks to the International Financial Reporting For Non Profit Organisations (IFR4NPO). Future financial reporting standards could look very different with the IFR4NPO aiming to develop internationally applicable financial reporting standards for nonprofits. This will result in consistent standards across all nonprofit organisations internationally, making it much easier to remain uniform with financial reporting standards.