The Application of the Reporting Entity Concept by Australian Charities

Abstract

We provide evidence on the application of the reporting entity concept by Australian charities by correlating the type of financial report with the indicators of reporting entity status posited under Statement of Accounting Concepts 1 (SAC1). In addition, we present evidence on the quality of charity financial reporting by investigating compliance with certain requirements of Australian accounting and auditing standards. We examine a random sample of 574 charities, comprising 10% of large charities that lodged financial reports with the Australian Charities and Not-for-Profits Commission in 2014. We find that while some indicators of reporting status are statistically significant in explaining reporting choice, their economic significance is weak. Consequently, we conclude that the application of the reporting entity concept is inconsistent, and raise questions about the effectiveness of SAC1 and the quality of charity financial reporting.