Public mandates, market monitoring, and nonprofit financial disclosures

• Published in: Journal of accounting and public policy Vol. 30; no. 1; pp. 71 - 88
• Main Author: Calabrese, Thad D.
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 2011; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Accounting and Public Policy
• Subjects: Accountability; Accounting standards; Accruals; Auditing; Compliance; Corporations, Nonprofit; Disclosure; Financial disclosure; Financial reporting; GAAP; Market analysis; Markets; Monitoring; Non-profit organizations; Nonprofit organizations; Public officials; Public sector; Regulation; Studies; Surveillance
• ISSN: 0278-4254; 1873-2070
• DOI: 10.1016/j.jaccpubpol.2010.09.007

Public officials have recently sought increased regulation of financial disclosures from not-for-profit organizations as a means of improving accountability with the public. One objective of this study is to examine whether not-for-profit entities already subject to audit requirements submit financial reports in compliance with GAAP. Further, since the majority of not-for-profit organizations are not subject to public audit mandates, this study also ascertains whether other market actors such as donors monitor and demand accrual-based financial information. The empirical analyses indicate that not-for-profit organizations subject to public audit mandates are largely in compliance with GAAP, although a significant minority of organizations subject to state requirements is not; further analyses suggest that external oversight significantly influence the use of accrual reporting. Models are also tested on a subsample of not-for-profits that switched from cash to accrual reporting, with the results suggesting that increasing public and market oversight have a significant effect on the decision to switch methods. The overall results suggest that public and market actors demand accrual-based financial reporting from not-for-profit organizations.