This research aims to assess the impact of financial reporting frameworks on the quality of financial reports produced by Non-Governmental Organizations (NGOs) in Botswana. The need for this study arises from the absence of financial reporting frameworks tailored to the specific requirements of NGOs, leading to misrepresentation and fraudulent practices (Puyvelde et al., 2012). The research is situated within the broader domain of accountability, drawing on theories of resource dependency, agency, and stewardship to provide a theoretical framework. Accountability, defined by Stewart (1984), holds organizations responsible for their actions, with Flannigan (2004) identifying five accountability types, including financial and fiduciary aspects. Theoretical underpinnings also incorporate resource dependency, agency, and stewardship principles to understand the external resource dependence, self-interest prioritization, and collaborative relationships within NGOs.
The research methodology employed a secondary quantitative method and a causal-comparative research design, aligning with Charles’ (1998) proposal. This design facilitated the exploration of relationships between dependent and independent variables, employing a unique tool, the Francis Quality Management Tool – Financial Reporting (FQMT-FR), for data collection and analysis. The FQMT-FR aimed to operationalize constructs and provide an optimal instrument for evaluating the relationship between financial reporting frameworks and NGO financial report quality.
Results indicated low financial reporting quality among NGOs in Botswana, with compliance measured at 48%, disclosures at 22%, and an overall financial reporting quality score of 15.3%. Findings suggested that existing frameworks had minimal impact on the quality of financial reports, potentially due to their irrelevance for NGO reporting purposes.
In conclusion, the study recommended the development of an NGO-specific financial reporting framework by the International Accounting Standards Board (IASB). This framework should encompass the conceptual dimensions of accountability, agency, and resource dependency theories. Additionally, the IASB should allow national accounting standard boards, including the Botswana Institute of Accountants (BOA), to customize the framework based on local environmental factors. Future researchers are encouraged to utilize the FQMT-FR for assessing NGO financial reports, and educators should incorporate it into training programs. Overall, the study contributes valuable insights for standard-setting bodies and practitioners in enhancing financial reporting quality for NGOs.