ACCA Applied Skills · Performance Management · Performance analysis in private sector, public sector and not-for-profit organisations
A charity has a surplus of $50,000 this year, higher than last year. Which of the following is the main reason why profit is an unreliable measure of a not-for-profit organisation's performance?
Its primary objective is to deliver services to beneficiaries rather than to maximise surplus. Because success is judged on non-financial objectives such as outcomes and service quality, a surplus tells users little about performance and may even indicate under-delivery of services.
- AIts primary objective is to deliver services to beneficiaries rather than to maximise surplusCorrect
- BNot-for-profit organisations are not permitted to report any surplus
- CIts funding is always from government grants, so surplus is fixed
- DIts accounts are not prepared using a recognised financial reporting framework
Explanation
Not-for-profit bodies exist to achieve non-financial objectives such as service provision, so financial surplus does not show whether they met them. A surplus may even indicate under-spending on services. They can report surpluses, funding is varied, and they do prepare accounts under frameworks.
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