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What’s in an NFP statement? How to understand these crucial financial reports
Those working in or alongside the NFP industry know the importance of transparency across all aspects. Financial transparency in particular is a key method of maintaining accountability and building stakeholder trust.
NFP statements are a highly effective way to encourage that transparency, but if you don’t have a finance or accounting background, you might not feel entirely clear about what they are exactly.
Read on to learn more about this essential piece of financial reporting, with our guide to understanding NFP statements.
What is the purpose of an NFP statement?
Let’s begin with a quick overview of what an NFP statement is. Simply, it’s a comprehensive financial report that provides a summary of the financial activities and performance of a not-for-profit organisation.
It also allows easy visibility of the overall position of the organisation in relation to any assets, obligations and liabilities.
You’ll likely need to provide an NFP statement if you’re registered with the Australian Charities and Not-for-profits Commission (ACNC), as it’s a legal requirement to submit an NFP statement each year within five months of the financial year-end.
Similar to a profit and loss statement, the NFP statement serves as a vital tool for stakeholder engagement and demonstrates transparency to key parties.
Donors, board members, government agencies and potential investors rely on the NFP statement to assess your organisation’s financial health, governance practices and overall performance.
So providing NFP statements isn’t just crucial for compliance, it also helps build trust and accountability, which are essential for attracting funding and support.
What does an NFP statement include?
The requirements of your NFP statement will vary depending on the complexity of the organisation, but it should serve to highlight how your organisation handles its finances and income.
As such, you can include sections on the following:
Income statement
This section needs to detail the revenue, expenses and net income or surplus/deficit throughout the financial year. This helps assess the financial viability and sustainability of your NFP organisation by analysing the ability to generate and manage funds.
Balance sheet
The balance sheet presents all the assets, liabilities and equity for a specific date. It provides insights into your NFP organisation’s financial stability and helps stakeholders determine any financial risks or opportunities.
Cash flow statement
The cash flow statement highlights your cash flow during a given period and shows your organisation’s ability to generate and manage cash, as well as your cash management practices.
Additional notes to include
If you can, provide additional information and explanations related to the financial figures presented in the statements. This way, you can clarify accounting policies, disclose significant events or contingencies and provide context for improved financial results.
Compliance standards and regulations
NFP organisations, including charities and community groups, must adhere to specific accounting standards and reporting frameworks.
These standards, such as the Australian Accounting Standards Board (AASB) or the applicable standards for Aboriginal Land Councils, ensure consistency, transparency and communication of financial information in the NFP sector.
Submitting an NFP statement is integral to maintaining compliance with relevant regulations, which may vary depending on your location, the type of organisation you have registered your NFP as and the kind of activities it performs.
Regardless, those in an NFP organisation should keep up to date with regulatory changes and ensure all policies and procedures reflect any changes as they arise. That way, when it is time to draft and submit an NFP statement, you can feel confident that you haven’t overlooked anything.
Failing to submit your yearly NFP statement can lead to noncompliance penalties for late lodgement, which can reach up to a maximum of $10,000.
We can support you with your next NFP statement
Once you’ve become familiar with creating NFP statements, you’ll find that by analysing the financial data every year, you can easily identify areas of strength, areas for improvement and potential risks.
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