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Financial Reporting Lags in the Non-profit Sector: An Empirical Analysis

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Abstract

We examine financial reporting lags among a large sample of Belgian non-profit organizations (NPOs). Doing so, we add to the literature on financial reporting and accountability in the non-profit sector. Next to drivers of the financial reporting lag that have been identified in prior studies based on private firms (e.g., delaying the disclosure of bad news), we find that the way of funding the NPO (i.e., reliance upon donations and/or grants) and its specific area of activity are significantly related to the financial reporting lag. Our results also suggest that important changes in accounting regulation significantly delay the financial reporting process. Importantly, we note that 17.2 % of the sample organizations do not file their financial statements within the legal time span.

Résumé

Nous examinons les retards dans la publication des rapports financiers pour un large échantillon d’organisations à but non-lucratif belges. Ce faisant, nous contribuons à la littérature sur les rapports financiers et la responsabilité dans le secteur à but non-lucratif. Nous trouvons que, en plus des facteurs retardant la publication des rapports financiers qui ont été identifiés pour les compagnies du privé (par exemple pour chercher à retarder la révélation de mauvaises nouvelles), le mode de financement propre aux organisations à but non-lucratif (c’est-à-dire leur dépendance sur des donations et/ou des subventions) et leur domaine d’activité spécifique ont un impact significatif sur le retardement de la publication de leurs rapports financiers. Nos résultats suggèrent également que des changements importants dans la règlementation de la comptabilité retardent significativement le processus de rapport financier. Comme nous l’observons, il est important de noter que 17,2 % des organisations étudiées ne soumettent pas leurs comptes dans les délais légaux.

Zusammenfassung

Wir untersuchen anhand einer großen Stichprobe belgischer Nonprofit-Organisationen die Verzögerungen der Finanzberichterstattung und erweitern dadurch die Literatur zur Finanzberichterstattung und Rechenschaftspflicht im Nonprofit-Sektor. Neben den treibenden Gründen für eine verzögerte Finanzberichterstattung, die in vorherigen Studien von Privatunternehmen identifiziert wurden (z. B. eine verzögerte Bekanntgabe schlechter Nachrichten), stellen wir fest, dass eine enge Verbindung zwischen der Finanzierungsart der Nonprofit-Organisation (d. h. die Abhängigkeit von Spenden oder Subventionen) bzw. ihrem spezifischen Tätigkeitsbereich und einer verzögerten Finanzberichterstattung besteht. Unsere Ergebnisse weisen zudem darauf hin, dass wesentliche Änderungen der Rechungslegungsvorschriften das Finanzberichterstattungsverfahren erheblich verzögern. Ein weiterer wichtiger Faktor ist, dass 17,2 % der untersuchten Organisationen ihre Finanzberichte nicht innerhalb der gesetzlich vorgesehenen Frist einreichen.

Resumen

Examinamos los retrasos en la información financiera entre una amplia muestra de organizaciones belgas sin ánimo de lucro. Al hacerlo, contribuimos al material publicado sobre información financiera y responsabilidad en el sector de las organizaciones sin ánimo de lucro. Junto a los impulsores del retraso en la información financiera que han sido identificados en estudios previos basados en empresas privadas (p.ej.: el retraso en la divulgación de malas noticias), encontramos que la forma de financiar a la organización sin ánimo de lucro (es decir, la dependencia en las donaciones y/o subvenciones) y su área específica de actividad están relacionadas de manera significativa con el retraso en la información financiera. Nuestros resultados sugieren también que los cambios importantes en la reglamentación contable retrasan de manera significativa el proceso de información financiera. Lo que es más importante, observamos que el 17,2 % de la organizaciones de la muestra no presentan sus estados financieros dentro del lapso de tiempo legal.

摘要

我们对很多比利时非营利组织实例进行了财务报告滞后分析,同时还增加了有关财务报告和非营利领域责任的文献资料。根据前期基于私营公司的研究确定的导致财务报告滞后的因素(例如延期披露坏消息),我们发现资助非营利组织的方式(即依赖捐款和赠款)及其特定业务领域与财务报告滞后有很大的关系。我们的结果还表明,会计条例的重要变更在很大程度上延误了财务报告过程。重要的是,我们注意到,有17.2 %的组织实例未在合法的时间期限内提交其财务报表。

ملخص

نحن نفحص تأخر التقارير المالية فيما بين عينة كبيرة من المنظمات الغير ربحية البلجيكية. إذا فعلنا ذلك فإننا نضيف إلى ما كتب حول التقارير المالية والمساءلة في القطاع الغير ربحي. ثم بعد ذلك الذين يوفرون الدافع لتأخر التقارير المالية التي تم تحديدهم في الدراسات السابقة المرتكزون في الشركات الخاصة (على سبيل المثال، تأخير الكشف عن الأخبار السيئة)، نجد أن طريقة تمويل المنظمة الغير هادفة للربح (على سبيل المثال الإعتماد على الهبات و/أو المنح) والمجال المحدد للنشاط يرتيط إلى حد كبيربتأخر التقارير المالية. نتائجنا تشير أيضا˝ إلى أن تغييرات مهمة في قواعد المحاسبة يؤخر تأخير كبير إجراء التقارير المالية. الأهم من ذلك، نلاحظ أن 17.2٪ من عينة المنظمات لا يرسل بياناته المالية ضمن الفترة الزمنية القانونية.

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Notes

  1. Connolly and Dhanani (2009), for example, distinguish between upward and downward accountability. Hayes (1996) discerns (i) fiscal accountability, (ii) process accountability, (iii) programme accountability, and (iv) accountability for priorities, while Stewart (1984) refers to contractual and communal accountability.

  2. Bird and Morgan-Jones (1981), for example, identify the following user groups: (i) governing bodies and employees, (ii) donors who wish to support a particular cause, (iii) recipients of services, (iv) government and community, (v) creditors, and (vi) donors who want to compare charity efficiency before donating.

  3. Very large NPOs exceed at least two of the following criteria: (i) total assets of 3,125,000 EUR, (ii) total incoming resources of 6,250,000 EUR, and/or (iii) 50 employees expressed as full-time equivalents. NPOs with at least 100 full-time equivalent employees are always considered to be very large. Large NPOs exceed at least two of the following characteristics: (i) five full-time equivalent employees, (ii) total assets of 1,000,000 EUR, and/or (iii) total incoming resources of 250,000 EUR. All other NPOs are considered to be small. Note that for small NPOs there is no obligation for accrual accounting (cash-based accounting is still sufficient), nor for filing the FS and/or having them externally audited. The purpose of these thresholds is to ensure that the smallest organizations are not subject to the same level of regulation as larger organizations (Morgan 2010). It might be interesting to add that in England and Wales, charity reporting requirements are also differentiated based on size thresholds (defined in terms of income) (see, e.g., Morgan 2010, 2011 for further details).

  4. However, because of NPOs’ particularities, legislators have made some very minor changes to the format of the FS applicable to NPOs (as compared to the required format for for-profits). These subtle changes relate to (i) equity (balance sheet), where “capital” and “reserves” (for-profits) have been replaced by “funds of the organization” (NPOs) and (ii) revenues (income statement), where the item/line “membership contributions, other contributions, bequests, and grants” was added in the format applicable to NPOs.

  5. With a view to being complete, we note that there are two different formats: a complete format of the FS (mandatory for very large NPOs and allowed for large and small NPOs on a voluntary basis) and an abbreviated format of the FS (mandatory for large NPOs unless they choose to file the complete format and allowed for small NPOs on a voluntary basis). As the names already suggest, the latter format is less detailed and provides less information than the former. For example, while the complete format has 52 pages, the abbreviated format has 30 pages. Specific examples of differences between both formats are that, on the balance sheet, the abbreviated format contains less detailed information with respect to financial fixed assets, inventories, investments, and long-term debt. In the abbreviated format of the income statement, operating revenues (e.g., turnover) may be merely expressed as a gross margin, whereas detailed information on both operating revenues and expenses are mandatory in the complete format. Last but not least, far less information (and detail) is required in the notes for the abbreviated format of the FS. It is very important to note that, regardless of the FS format used, the organization is obliged to provide all information contained in that type of format.

  6. Late filings are punished by means of an administrative sanction. The administrative sanction depends upon the actual reporting delay and ranges from 400 EUR (120 EUR) up to 1,200 EUR (360 EUR) for the complete (abbreviated) format of the FS.

  7. It is important to acknowledge that certain NPOs with commercial income might be selling services that are purchased by the public sector (see, e.g., Bruce and Chew 2011; Dacombe 2011). In such case, the distinction between a grant and commercial income becomes faint. Because of data limitations, we are not able to adjust for this potential issue in our analyses. This limitation should therefore be taken into consideration when interpreting our results.

  8. In this study, we only consider FS prepared according to the new rules. As mentioned earlier (cf. “(Financial) accountability and the Belgian legal framework” section), new regulation was applicable for accounting years starting as from Jan 1, 2006 onwards. Our sample therefore only considers FS that relate to accounting years that start on or after this date. In this respect, it might be interesting to add that about 98 % of our sample NPOs has an accounting year that corresponds to the calendar year (i.e., starting on Jan 1 and ending on Dec 31). Last but not least, it might be interesting to add that, besides the starting date of the accounting year, also the format and the public availability of the FS ensured that we were working with FS that had been prepared following the new accounting requirements.

  9. Bureau van Dijk’s Belfirst database contains FS data for Belgian and Luxembourgian firms.

  10. A limitation of the Belfirst database is that it only includes data from FS that have been filed according to a format prescribed by law (because information in the Belfirst database is presented according to these templates). Nevertheless, certain industries prescribe alternative formats and data with respect to NPOs that file their FS employing an alternative format is therefore not available in the Belfirst database. For NPOs using an alternative format, we manually collected the required information from the actual FS. As discussed earlier, Belgian companies (including NPOs) that have to prepare FS need to file these FS with the NBB. These FS are then made available to the general public through the website of the NBB and we therefore used this website to collect actual FS. The inclusion of the manually collected data gives greater reliability to our findings.

  11. The Belfirst database only includes the name of the auditor, but does not include any other information with regard to the audit report (e.g., type of audit opinion). We therefore had to collect the audit reports for all sample NPOs through the website of the NBB.

  12. Log transformation has been used to normalize the distribution and to linearize the model (see Kleinbaum 1978; Maddala 1977 for transformation justification).

  13. The NACE-BEL classification is comparable to SIC-codes and provides a very detailed taxonomy of industries. Data on the NACE-BEL code of individual NPOs is provided by the NBB. Satellite accounts are a comprehensive statistical system to describe the activities of the non-profit sector. They are proposed by the UN Statistics division in collaboration with Johns Hopkins Center for Civil Studies. Pacolet et al. (2001) have provided a table of congruence between NACE-BEL codes and Satellite accounts.

  14. It might be interesting to add that 3.81 % of the sample NPOs has a FRL that exceeds 365 days (or 1 year).

  15. Multicollinearity increases the standard errors of the coefficients. VIFs measure how much the variance of the estimated coefficients is increased over the case of no correlation among the independent variables. Typically, VIFs below 5 are considered to be acceptable (i.e., not suggestive of multicollinearity problems).

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Acknowledgments

The authors would like to thank ICCI (Informatiecentrum voor het Bedrijfsrevisoraat) for funding part of the data collection process and Jan Dierick for research assistance. Moreover, the authors would like to thank participants of the IX Workshop on Empirical Research in Financial accounting (Gran Canaria) and two anonymous reviewers for their insightful comments on prior versions of this paper.

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  1. HUBrussel, Warmoesberg 26, 1000, Brussels, Belgium

    Anne-Mie Reheul, Tom Van Caneghem & Sandra Verbruggen

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  1. Anne-Mie Reheul
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  2. Tom Van Caneghem
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  3. Sandra Verbruggen
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Correspondence to Tom Van Caneghem.

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Reheul, AM., Van Caneghem, T. & Verbruggen, S. Financial Reporting Lags in the Non-profit Sector: An Empirical Analysis. Voluntas 25, 352–377 (2014). https://doi.org/10.1007/s11266-012-9344-3

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