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Special or general purpose report: don’t ask your users

In reading this post, please keep its age in mind.

Well I don’t think they actually asked their users individually, but they certainly thought about them in order to come to the conclusion that ‘there are no users dependent on a general purpose financial report’. I’m talking about the management and auditor of a $1m charity. And it appears from a Google search of the phrase that many others somehow concluded that their current users were similarly not dependent.

‘General purpose financial reports’ require compliance with the Australian Accounting Standards, so this meant that the charity could produce ‘special purpose financial reports.’ Less onerous, but, according to the standard setters, not useful to those who want to make money decisions about that charity.

‘No users’. That’s a bold claim. So if the management of this charity had made a mistake, and there was a user who doesn’t have the ability to ring up that charity and get the financial information that they need, then, at least according to the standard setters, they haven’t reported properly. Or if a new dependent user arises after their survey, the same applies. Silly, you say. I agree, and that’s why the standard setters didn’t say to ask the current users.

The latest definition of ‘reporting entity’ – for that is what determines whether or not you have to prepare general purpose financial statements – says that it is

an entity in respect of which it is reasonable to expect the existence of users who rely on

those kind of statements[i]. ‘Reasonable to expect’: that is, it doesn’t just mean existing users; it includes potential users. So to be able to prepare special purpose financial reports you have to be prepared to tailor a report for anybody in the future who has a legitimate interest in finding out how you had performed. Because you won’t have a general purpose report that you can give them.

For a few of the organisations that use the same phrase as that used by the $1m charity, there is a more charitable explanation. And that is that they thought about both existing and potential users, but then just used words that implied an assessment of the needs of only existing users. To be fair to them, it is not uncommon for my colleagues to recommend that phrase. But I’d maintain that it doesn’t accurately represent what accounting law requires, and the practice should change.

I say ‘a few of the organisations’, for I’ve little doubt that many of the organisations, including the $1m charity, should have concluded otherwise.

Do you need to think again about your decision to say that you are a non-reporting entity?


P.S.  Business by The Book exists to provide accounting, audit and governance services, for no fee if necessary, to not-for-profits who are themselves serving those who are the cultural equivalents of the Bible’s fatherless, widows and aliens.


[i] AASB 1053, www.aasb.gov.au, Appendix A