Presentation on NGOs

8/18/2019 Presentation on NGOs

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Not for Prot Organisations:Issues in Applicability of dierent AccountingStandards

SAFAConference

Accounting Profession in South AsianRegion

Anushya Coomaraswamy Chennai - 30 September 2006


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Not for Prot Organisations:Issues in Applicability of dierent Accounting Standards

Denition drawn from the orld !an"

“he !or"# $an% uses the term Ci&i" Society to refer to the wi#earray of non-go&ernmenta" an# non-pro't organi(ations that ha&ea presence in pub"ic "ife) e*pressing the interests an# &a"ues oftheir members or others) base# on ethica") cu"tura") po"itica")scienti'c) re"igious or phi"anthropic consi#erations+ Ci&i" Society,rgani(ations CS,s. therefore refer to a wi#e array of

organi(ation/ community groups) non-go&ernmenta" organi(ations1,s.) "abor unions) in#igenous groups) charitab"eorgani(ations) faith-base# organi(ations) professiona"associations) an# foun#ations+


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#ommon features

$oluntary either "oca" to a particu"ar area) nationa" or internationa"

!ith speci'c ob4ecti&es to the benet of society in general) or a

particu"ar &u"nerab"e group of society) or an i#enti'e# interest or target

groups

,b4ecti&es are not prot oriented

No ownership interests - Recei&e 'nancia" support for promotion of the

organisation5s ob4ecti&es


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Some underlying principles to be considered

he princip"es of recognition an# measurement shou"# genera""y beretaine# whi"e pro&isions with regar# to #isc"osure may nee# to bere#uce#

Fun#amenta" recognition of the fact that the 'nancia" structure of an#the acti&ities of P,s are #ierent from that of a commercia" enterprise+

7+ o ownership interest / no re8uirement for a return on in&estment+

2+ 9nformation on usage of fun#s is to &erify e:ciency of management

an# e8uity of pro4ects/ no reference to cost or ser&icing of #ebt an#e8uity

3+ ;mphasis on transparency of management) e8uity of pro4ects /stri%ing a ba"ance between transparency an# accountabi"ity< an#

=+ optimum use of "imite# resources a&ai"ab"e) inc"usi&e of capacity ofsta to imp"ement the stan#ar#s


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Ob%ecti$es

o assist those who are responsib"e for the preparation of theFinancia" Statements to impro&e the 8ua"ity of 'nancia"reporting by P,s+

o reduce the di$ersity that current"y e*ists among the&arious P,s in accounting practices an# presentation+

o pro$ide for transparency in the 'nancia" acti&ities ofP,s an# accountabi"ity for resources entruste# to the>anagement

o ensure that ade&uate information is pro&i#e# to the&arious users of these Financia" Statements


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he ma4ority of the 9nternationa" Accounting Stan#ar#s wou"# beapp"icab"e to the P, sector) with some a#4ustment particu"ar"ywith regar# to #isc"osure+

Some stan#ar#s may nee# to be interprete# #ierent"y) gi&en thewor%ings of an P,+

Some are in#ustry re"ate# an# wou"# not therefore re"ate to an P,

,thers may contain a "e&e" of sophistication which) gi&en the "imite#resources a&ai"ab"e to an P,) cou"# be counter pro#ucti&e+


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Presentation of 'inancial Statements ( IAS )

Incoming *esources+*e$enue

7+ 1o&ernment 1rants) ;n#owments2+ ?onations an#@or contributions from #onor organisations or

in#i&i#ua"s

3+ A""ocations from Centra" ea#8uarters o&erseas

=+ 9nterest) #i&i#en#s etc from in&estments

,-penditure

7+ Pro4ect ;*pen#iture) #irect an# in#irect - often inc"usi&e of capita"costs

2+ A#ministrati&e Costs

3+ Capita" costs


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Income Statement is the nancial representation of the acti$ities of

an NPO

ee# to

?ierentiate between Restricte# an# Bnrestricte# Resources an# Restricte#

an# Bnrestricte# Pro4ects

to match of income against e*pen#iture incurre# through Restricte# Fun#s+

to pro&i#e summary #etai"s of ?irect an# 9n#irect Pro4ect Costs

to inc"u#e pro4ect re"ate# capita" costs with Pro4ect Costs in 9ncome

Statement

o show separate"y other unrestricte# #onations) contributions) surp"uses<

an# other a#ministrati&e e*pen#iture


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!alance sheet -

;8uity Statement wou"# be the mo&ement of fun#s in Restricte# Fun#s)

Bnrestricte# Fun#s) ;n#owments) ?esignate# Fun#s+ here is no #istribution of

Pro'ts+

Representation of Fun#s recei&e#

- if as a restricte# fun# for an i#enti'e# pro4ect to be retaine# unti" uti"ise#<

- if as an en#owment) income from capita" to be use# as prescribe#

- if a genera" contribution un#er Bnrestricte# fun#s or as #esignate# fun#s) thenrecognise in the 9ncome Statement on a cash basis) un"ess #esignate# by the

$oar# of >anagement+- if #esignate#) then retain unti" e*pen#e# for #esignate# purpose# or the#esignation is with#rawn by the $oar# of >anagement+

- Capita" Reser&es arising from the capita"isation of pro4ect assets


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#ash 'low Statement ( IAS .

Since the usage of restricte# fun#ing is matche# against income the cashow wou"# primari"y be on account of unrestricte# fun#s+


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In$entories ( IAS /

?onations may be recei&e# in %in# for #istribution #irect"y tobene'ciaries< or for sa"e an# fun#s to be use# for bene't of bene'ciaries+

Any such items he"# by the organisation are not brought into the boo%s<but #etai"s with 8uantities) &a"ue if a&ai"ab"e. shou"# be ma#e a&ai"ab"efor purpose of transparency+


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#onstruction #ontracts IAS ))

9AS "oo%s at construction contracts primari"y from the point of &iew of the

contractor+ he approach for an 1, must be #ierent

Recognition an# >easurement - Assessment on a contract by contract basis

base# on the stage of comp"etion of contract

?isc"osures

Contracts in progress/the aggregate amount "ess any grants recei&e#

etc+

1ross amount #ue from #onors an# gross amount #ue to contractor to be

shown separate"y


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Accounting for 0a-es ( IAS )/

?isparities an# uctuation between accounting pro'ts an# ta*ation are "ow?isparities an# uctuation between accounting pro'ts an# ta*ation are "ow

Dey consi#erations wou"# be/

to simp"ify #isc"osure re8uirements by e*c"u#ing the reconci"iation of pro'ts< an#

e"iminate the nee# for pro&isions re"ating to ?eferre# a*+


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Segment *eporting ( IAS )1

Segments cou"# be -

$usiness segments- be base# on acti&ity< or

1eographic segments "in%e# to "ocation of u"timate bene'ciaries+

;mphasis for information shou"# be on acti&ities an# "ocations of the entity< not

for the purpose of a##ressing ris% an# return+

Areas for Segment reporting to be income) e*pen#iture) resu"ts) fun#ing etc+

A""ocation of centra" PP; an# other assets an# "iabi"ities may not ser&e any

purpose+

Segment reporting in interim reporting shou"# be optiona"+



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Property Plant and ,&uipment 2 IAS )3

Dey areas to be focusse# on are

Purchases of capita" items through a grant recei&e#< or a #onationrecei&e# of a capita" item cou"# be recognise# through a #eferre#income account< with #epreciation being set o against the e"ement ofthe #onation written bac% each year in the 9ncome Statement an# the#onation set o against the asset account in the $a"ance Sheet+

!here PP; is purchase# as part of a pro4ect an# written o to the9ncome Statement there is no certainty on ownership+ hese itemsnee# to be shown at "east as a memoran#um note to the Financia"Statements+ hese assets shou"# be brought into the boo%s through acapita" reser&e at a &a"uation) if an# when ownership re&erts to theorganisation+



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*e$enue 2 IAS )4

Re&enue must be #ierentiate# from 9ncome

Re&enue for 1,s wou"# arise from the sa"e of goo#s) ren#ering of

ser&ices for a fee an# the use by other thir# parties of enterprise

assets e+g+ 9nterest earne# from #eposits etc.

1rants) #onations) a""ocations from ea# ,:ce) Fun# raisers wou"# be

the 9ncoming resources to be use# #irect"y for the purpose of the

acti&ities of the P,+


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*etirement !enet #osts ( IAS )5

- Eiabi"ity to be base# on any re"e&ant statute) agreement or other

constructi&e ob"igation as may be re"e&ant< or any other higher. interna"re8uirement app"icab"e to a"" emp"oyees<

- Actuaria" &a"uation to be an a"ternati&e+



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Accounting for 6rants and other Assistance 2 9AS /7

1rants represent the main source of 9ncome an# inc"u#es assistancerecei&e# from 1o&ernment< #onations) an# for 91,s moneys recei&e#from the s

1rant recei&e# by an P, is recognise# in the 9ncome Statement - on"y when there is certainty of receipt an# a"" con#itions for its

receipt are fu"'""e#< an#

- to the e*tent that they match e*penses that they are e*pecte# to

compensate on a systematic basis+

!here a grant has been recei&e# an# there is no e*pectation of anyfuture re"ate# costs) or that it be refun#e# to the #onor) it shou"# be

recognise# as income in the perio# in which it becomes recei&ab"e+

on monetary grants shou"# be i#enti'e# as a #eferre# asset an#

recognise# on a systematic basis o&er the "ife of the asset+


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Discontinuing Operations ( IAS 89

9nitia" #isc"osure to be when >anagement has appro&e# a p"an for

#iscontinuance #ate of #iscontinuance an# acti&ity or geographic

segment in which it is being reporte#+

Pro4ects with speci'c tenure e*c"u#e# from these pro&isions

In$estment Properties ( IAS 17

RP app"ie# to #ierentiate between 9n&estment property an# owner

occupie# premises+ $ut thereafter measurement an# &a"uation to be in

accor#ance with other PP;+ Pro&ision for impairment of PP; an#

9n&estments inc"u#e# un#er the re"e&ant sections+


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IASs that are business oriented and not applicable to NPOs

9AS 22/ $usiness combinations)

9AS 30/ Re&enue recognition an# #isc"osures in the 'nancia" statementof ban%s)

9AS 33/ ;arnings per share)

9AS 32/ Financia" instruments/ ?isc"osure an# Presentation

9AS 36/ 9mpairment of Assets+

Intangible Assets - IAS 38

IAS 36: Impairment of Assets, together with IFRS 3: Business Combinations,

contain provisions that impact IAS 38: Intangibe Assets! "herefore it ma# be

preferabe that $%&s be sub'ect to the (u# )*** version of IAS 38!


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Accounting for In$estments ( IAS /9

+ to be base soe# on the origina IAS -., rather than the new IASs reating to Financia

Instruments which have repace IAS -.!

Accounting for In$estments in Associates ( IAS /4

- to be recognise# in the 'nancia" statements on the e8uity metho#+

In$estment in ;oint


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#onsolidated and Separate 'inancial Statement ( IAS /.

o be base# on a percentage of &oting power+

Interim 'inancial Statements ( IAS 81

he "e&e" of information to be inc"u#e# in interim statements shou"#

consi#ere# in the conte*t of the "imite# source@capacity a&ai"ab"e within

P,s+


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Presentation on NGOs

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