Labour’s pledge to double the size of the UK’s co-operative and mutual economy has thrown a spotlight on the barriers facing the sector as it tried to grow – including an unsuitable set of reporting and accounting standards.
At last year’s conference of the UK Society for Co-operative Studies, Dr Elisavet Mantzari, from the Department of Accounting at the University of Birmingham, announced work to address this by creating a specific accounting framework for the co-op sector.
She said the sector lacks specific formats or statement of recommended practice (SORP) – prompting a 2019 motion by the International Cooperative Alliance passed supporting the development of international co-op SORP.
This prompted the UK project, with a view to international rollout. With funding from the Economic and Social Research Council (ESRC), it has been led by a committee including academics, accountants, Ian Adderley from the Financial Conduct Authority, and Rose Marley, CEO of Co-operatives UK.
“We want to generate evidence that there are issues and inconsistencies in reporting, and promote change,” Mantzari told the UKSCS. “Accounting is important in enabling co-ops to be accountable and improve performance.”
Problems in the currrent set-up
Following theresearch – drawing on interviews with co-operative practitioners, accountants, researchers, and regulators – Mantzari has written a report with Maureen McCulloch and Daphne Rixon, with advice from Cliff Mills, which notes that accounting standards, such as the International Financial Reporting Standards (IFRS) and UK Generally Accepted Accounting Practice (GAAP), are tailored to investor-owned business with a focus primarily on financial returns and shareholder value.
“As a result,” the report warns, “these standards fail to adequately address the accountability needs of co-operatives, creating challenges in aligning their accounting practices and reporting with their purpose, core values, and governance structures.”
A key finding is that the lack of a co-op-specific framework leads to “fragmented and inconsistent financial accounting and reporting”.
Related: Report from the 2025 UKSCS/SCSI conference
The various legal structures available to co-ops require the use of different reporting formats and adherence to diverse regulations, it adds, “creating confusion both within individual co-operatives and across the movement as a whole”.
To make matters worse, there is a shortage of accountants familiar with the co-op model – while investor-focused accounting standards like IFRS and FRS 102 “often misalign with the co-operative model, particularly in the treatment of co-operative capital and profit allocation, leading to inaccuracies in reports … This misalignment creates challenges in accounting for transactions like mergers and acquisitions, and shared asset management”.
Co-ops also face challenges in balancing their economic objectives and social purpose, which “often complicates decision-making, particularly in competitive markets”.
Accounting plays a critical role in measuring and communicating economic and social objectives, but traditional practices often prioritise financial metrics, overlooking co-operative principles such as democratic member control, economic participation, and concern for the community.
And core co-operative characteristics, such as being values-based, centred on people’s needs and aspirations, and being equitably governed, are not adequately reflected in traditional accounting reports.
“While co-operatives are improving in articulating social objectives, there is still significant progress to be made, especially when compared to the articulation of financial objectives,” the report says. “As a result, co-operatives’ broader contributions are frequently under-represented in financial reports.”
Current reporting standards also fail to adequately capture member economic participation that involves members’ financial contributions, democratic control, and benefits based on their transactions with the co-op, the study found. Nor is “sweat equity” – members’ time, effort, and skills – accounted for.
And few co-operatives include in their reports metrics like AGM attendance, voting rates, and percentage of member trade.
There are also challenges in accounting for financial participation, particularly in classifying member capital as either equity or debt. Current accounting standards often count co-operative capital as debt rather than equity, which “complicates comparisons with other organisations,” the study warns, “and hinders efforts to secure external financing.”
When it comes to withdrawing member capital, indivisible reserves, and patronage dividends – which are inconsistently reported.
The remedy
The report finds “a strong need for a co-operative-specific Statement of Recommended Practice (SORP) and accounting framework in the UK”. The lack of such guidance creates challenges in regulatory compliance, particularly in adhering to both public and private sector rules, such as state aid regulations, it argues.
It recommends that co-ops deepen their focus on member-centred financial and non-financial reports and metrics. “This approach should go beyond traditional financial metrics by integrating impact narratives and non-financial indicators that reflect how co-operative actions translate into member benefits, such as improved wages, enhanced services, or participatory decision-making.”
They should also simplify their financial language and include graphical summaries or dashboards, to improve accessibility, making them more understandable for members.
It is also important to clarify the distinction between member and non-member transactions to highlight mutual benefits and transparency. This “should be the foundation for advocating for different fiscal treatment of surpluses generated from member trade,” the report argues, “particularly when that surplus is held in indivisible reserves.”
Other recommendations include offering financial literacy and education programmes to help members interpret accounting reports, participate in decision-making and understand the financial health of the co-op.
Co-operatives should also establish channels – such as surveys, forums and member meetings – for members to provide feedback on accounting and reporting of co-operative performance and member value, the report says. This could “create a continuous feedback loop, allowing members to voice concerns, suggest improvements, and increase their engagement with the co-operative’s operations”.
On a sectoral level, the report calls for consistent accounting guidelines that address the classification of co-operative capital, treatment of member distributions and patronage, revenue recognition, transfer of engagements, and other co-operative-specific accounting issues. It says this will “enhance transparency, improve comparability across co-operatives, and provide clarity for both financial professionals and members, reinforcing accountability and the value of co-operatives.”
To that end, the report says co-ops should work together to develop and implement a comprehensive set of standardised financial and non-financial indicators to enable consistent reporting across the sector.
And with a lack of professionals skilled in co-op finance, the sector should invest in training for co-operative accountants. “This investment will improve the quality of financial reporting,” says the report, “and ultimately increase the credibility and visibility of co-operative within the market.”
