ALIGNING FINANCIAL REPORTING OBJECTIVES WITH OPERATIONAL ORIENTATION IN HYBRID NON-PROFIT ORGANIZATIONS: A CONCEPTUAL MODEL
DOI:
https://doi.org/10.33102/7fn1xa65Keywords:
NPO, reporting, stewardship/accountability, decision-usefulness, stakeholdersAbstract
The landscape of charitable entities has shifted towards hybrid models, which combine social missions with commercial income-generating activities, thus presenting a unique challenge for financial reporting. Using waqf institutions as a definitive example of this hybrid structure, this conceptual paper addresses the ongoing debate between the two primary objectives of financial reporting: decision-usefulness and stewardship/accountability. Without a generally agreed-upon conceptual framework, standard-setting lacks cohesiveness, resulting in inconsistent reporting practices for institutions balancing dual missions. To resolve this, the paper proposes the Operational-Reporting Alignment Model, which asserts that a hybrid non- profit organisation's (NPO) financial reporting objective should be explicitly dictated by the intensity of its operational focus. Drawing on empirical evidence from Malaysian waqf institutions and the literature on hybrid organizations, this paper develops the Operational– Reporting Alignment Model. While the model is conceptualized using the waqf context, it is proposed as a theoretical framework for understanding how operational orientation may shape financial reporting objectives in hybrid charitable organizations more broadly. This model suggests that socially oriented institutions focusing heavily on non-income-generating welfare activities should adopt stewardship/accountability as their primary reporting objective, with decision-usefulness as a secondary focus. Conversely, economically oriented institutions that prioritise commercial activities to fund their social missions should adopt decision-usefulness as their primary objective. The paper further explores how this alignment theoretically informs subsequent reporting practices, such as the choice between historical costs (aligned with demonstrating stewardship) and current values (aligned with future-oriented decision- usefulness), and whether reports should target general or specific user needs. The paper concludes by urging accounting regulatory bodies to embed flexibility within financial reporting frameworks, allowing the primary objective to reflect the institution's dominant operational activities to effectively satisfy diverse and competing stakeholder claims.
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