National Accounting Standard for Non-Government Organizations

Transcription

1 Approved by the decree İ-05 dated 13 January 2009 Ministry of Finance of the Republic of Azerbaijan. National Accounting Standard for Non-Government Organizations Page 1 of 112

2 Contents National Accounting Standard for Non-Government Organizations...4 SECTION General Provisions...4 SECTION Financial Statement Presentation...10 SECTION Statement of Financial Position...14 SECTION Statement of Financial Performance...17 SECTION Statement of Changes in Net Assets/Equity...19 SECTION Cash Flow Statement...20 SECTION Notes...25 SECTION Accounting Policies, Changes in Accounting Estimates and Errors...27 SECTION Financial Instruments...32 SECTION Inventories...38 SECTION Investment Property...42 SECTION Property, Plant and Equipment...47 SECTION Intangible Assets...53 SECTION Leases...61 SECTION Provisions, Contingent Liabilities and Contingent Assets...64 SECTION Statutory and Accumulated Funds...71 SECTION Revenue from Exchange Transactions...73 SECTION Revenues from Non-Exchange Transactions...78 SECTION Borrowing Costs...85 SECTION Employee Benefits...87 SECTION Income Tax on Exchange Transactions...90 SECTION The Effects of Changes in Foreign Exchange Rates...92 SECTION Events After the Reporting Date...94 Page 2 of 112

3 SECTION Related Party Disclosures...97 SECTION First Time Adoption of NASNGO SECTION Effective date Appendix 1 Chart of Accounts for Non-Government Organisations Appendix 2 Model Statement of Financial Position for Non-Government Organisations Appendix 3 Model Statement of Financial Performance for Non-Government Organisations Appendix 4 Model Changes in Net Assets/Equity Statement for Non- Government Organisations Appendix 5 Model Cash Flow Statement for Non-Government Organisations Page 3 of 112

4 National Accounting Standard for Non-Government Organizations SECTION 1 General Provisions Scope 1.1 This Standard has been prepared in accordance with the Accounting Law of the Azerbaijan Republic and other legal and regulatory acts governing function of non-governmental organizations, and is based on basic principles of National Accounting Standards for Public Sector. 1.2 The aim of this standard is to improve financial statements of non-governmental organizations prepared in line with National Accounting Standards. 1.3 This Standard applies to non-government organisations, including Public Unions, Funds and other non-governmental organisations that were established and are operating according to relevant legislation. 1.4 Special sections of this standard cover definition and scope of financial statements prepared by non-governmental organizations and relevant financial elements recognized in those statements. 1.5 In the case of contradictions between effective normative-legal acts on accounting and this National Accounting Standard this standard will be applied. 1.6 Particular Sections of this Standard includes definitions of the specific terms used in it. Terms defined in one Section have the same meaning when they are used in other Sections of this Standard and not specifically defined. Purpose of the standard 1.7 The objective of this standard is to define methods for submission of general purpose financial statements ensuring comparison between financial statements drafted for the reporting period and those prepared by the same non-governmental organization for previous periods, as well as, financial statements of other non-governmental organizations. To achieve that goal this section reflects following considerations: (a) submission of financial statements; (b) (c) their structure; and minimum requirements for content of financial statements prepared in line with this standard. Concepts and Pervasive Principles 1.8 This Section does not stipulate any specific accounting or reporting requirements as these are provided in particular sections of this Standard. 1.9 The purpose of this Section is to set out the fundamental principles to be used in the preparation of financial statements in compliance with National Accounting Standard for Non-Government Organisations This Section covers the basic principles to be applied in the preparation and using of the Statement of Financial Position, Statement of Financial Performance, the Cash Flow Statement and the Changes in Net Assets/Equity Statement and notes, comments and other statements derived from these four primary statements A non-government organisation shall apply provisions of this Section in absence of specific requirements to accounting treatment of reportable transactions or other events. Page 4 of 112

5 1.12 In the case of conflict between the requirements of other sections of this Standard and this Section, the requirements of other sections will prevail. Users of Financial Statements 1.13 The users of financial statements include management of the non-government organisation, its members or founders, lenders and creditors, employees, the business contact group including trade creditors and customers, the government and the public. These groups and their informational needs can be described as: (a) Benefactors Group. This group comprises founders of the non-government organisation covering some individuals and/or legal entities (except for public administration and local self-governing bodies) united for common goals and not pursuing to get income and not dividing earned income among its members. Founders of non-governmental organizations have equal rights. Scope of their mutual rights and responsibilities in relation to creation of non-governmental organization and participation in function of non-governmental organization is defined in constituent contract (while signing a contract) and statute of non-governmental organization, respectively. (b) Lenders and Creditors. This group comprises existing and potential providers of short and long term secured and unsecured loans. Lenders require sufficient information that enables them to determine whether their loans and the interest attaching to them, will be paid when due. (c) Employee Group. This group comprises existing, potential and past employees involved in non-governmental organization. This group is interested in information about the stability of the enterprise and its ability to provide remuneration, retirement benefits and employment opportunities. (d) Business Contact Group, this includes customers, trade creditors, suppliers and similar business parties. (e) The Government, including tax authorities, local government and all regulatory bodies concerned with supervising activities of non-government organisation. This group requires appropriate information to regulate the non-government organisation. (f) The Public, including broad group of society interested and involved in activity of the reporting non-government organisation. Financial statements may assist the public by providing information about the trends and recent developments in prosperity of the reporting non-government organisation or the range of its activities. Assumptions Underlying National Accounting Standards for NGOs The Accrual Basis 1.14 Income and expenses should be recognised as a result of transactions carried out or other events when they occur rather than when cash or its equivalents is received or paid. Going Concern 1.15 The concept of going concern implies that a non-government organisation will continue in operation and that it has neither the intention nor the need to liquidate or curtail materially the scale of its operations Financial statements are usually prepared on the basis of the historical cost measurement of assets and liabilities. The principle of going concern is a prerequisite for the application of historical cost measurement When a non-government organisation is assumed to be liquidated, then it would be better to measure assets at their realisable value (i.e., at their sale price less cost of sales) rather than at the cost of their acquisition. In other words, when a non-government organisation is expected to terminate its operation in the near future, the realisable value of its assets would provide with more reliable information on the cash that could be expected to be generated by a nongovernment organisation to pay its liabilities The depreciation policy of a non-government organisation becomes reasonable and relevant only if it is assumed that the operation of a non-government organisation will continue in stable manner. When liquidation is imminent, the classification of assets as current and non-current would become meaningless as they would all become short-term assets to be liquidated. Page 5 of 112

6 1.19 As regard to liabilities the traditional classification of liabilities as current and non-current becomes inappropriate as users may find it useful to see a classification in terms of creditor payment priority. Qualitative Characteristics of Financial Statements 1.20 The following qualitative characteristics are the attributes that make the information provided in financial statements useful to users. Relevance Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events. The relevance of information is affected by its nature and materiality. In some cases, nature of information is sufficient to determine its relevance. In other cases, both the nature of and the materiality should be taken into account. Materiality Information is material if its omission or misstatement could influence the decisions of users taken on the basis of the financial statements. Materiality depends on the size or nature of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality is estimated with quantitative characteristics of materiality of information rather than qualitative. Reliability Information is reliable when it is free from material error and bias. That is, users may rely on such information to represent faithfully that which it should represent, or could reasonably be expected to represent. To be reliable, information should have following qualities: faithful representation, neutrality, prudence and completeness. Faithful representation Faithful representation of information implies that financial statements should portray the financial position and financial performance of a non-government organisation objectively to such extent as it is possible, based on the substance over form concept and being free from bias, distortion, manipulation or concealment of material facts. Generally it means that financial statements should faithfully represent the transactions and other events resulting in assets, liabilities, equity, expenses and revenues of the non-government organisation at the reporting date or the reporting period, which meet the recognition criteria of this Section or other Sections of this Standard. Substance over Form To reflect faithfully the transactions and other events in the financial statements, it is necessary that they are presented in accordance with their economic reality over their legal form. Neutrality To be reliable, the information contained in financial statements must be neutral, that is, free from bias. Financial statements are not neutral if, by the selection or presentation of information, they influence the making of a decision or judgment in order to achieve a predetermined outcome. Prudence Prudence is the exercise of caution when making estimates in conditions of uncertainty to ensure that assets or income are not overstated and liabilities or expenses are not understated. Generally, this means that in cases of uncertainty, the lower of possible estimates of asset values and income and the higher estimates of liabilities and expenses should be selected. However, the exercise of prudence does not justify the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses. Completeness To be reliable, the information in financial statements must be complete within the bounds of materiality and cost. Comparability The information is considered to be comparable in the case, when the users are provided with the possibilities to identify and evaluate the similarities and differences in the financial statements. Page 6 of 112

7 Comparability provides the users with the possibility to compare financial statements of an enterprise and financial statements of different enterprises over time in order to identify trends in its financial position and performance. Consistency Consistency is one of the major characteristics of information that is comparable. Comparability normally requires that the information presented in the financial statements be recognized, measured and presented in a consistent manner from period to period. Consistency means that a non-government organisation uses over time the same method of accounting for similar events. However, the application of the consistency principle should not prevent the changes in accounting policies that improve the relevance, reliability or understandability of financial statements. An important implication of comparability and consistency is that users should be informed of the accounting policies employed in the preparation of financial statements. If any changes are made to the policies, these must be clearly disclosed together with the effects of such changes. Understandability It is necessary that the essence of the information provided in the financial statements is understandable by users. Users of financial statements are assumed to have a reasonable knowledge of business and other activities of the reporting organisation and accounting and a willingness to study the information with reasonable diligence. Relevant information should not be excluded from the financial statements on the grounds that it is believed to be too complex for the users to understand. Constraints on Relevant and Reliable Information Balance between Timeliness and Reliability 1.21 Information is considered to be relevant only if it is presented in time. If there is undue delay in the reporting of information it may lose its relevance. However, to provide information on a timely basis it may be often necessary to report before all aspects of a transaction or other event are fully known. This may have an adverse effect on the reliability of the information. And on the contrary, if reporting is delayed until all aspects are known, the information may be highly reliable but be of little use to users who have had to make their decisions far earlier. The management of the non-government organisation should try to achieve a balance between the relative merits of timely reporting of information and its reliability. Balance between Benefit and Cost 1.22 The benefits derived from information should exceed the cost of providing it. Therefore, there is no need to provide non-material information in financial statements. Balance between Qualitative Characteristics 1.23 In practice a balance, or trade-off, between qualitative characteristics is often necessary. Generally the aim is to achieve an appropriate balance among the characteristics in order to meet the objectives of financial statements. The relative importance of the characteristics in different cases is a matter of professional judgment. The Elements of Financial Statements The Statement of Financial Position Elements Assets are resources controlled by the enterprise which arise as a result of past events and from which future economic benefits or service potential are expected to flow into the non-government organisation Liabilities are present obligations of the enterprise arising from past events the settlement of which is expected to result in an outflow of economic resources or service potential from the nongovernment organisation Net asset (equity) is the portion of assets of the non-government organisation remaining after deducting all liabilities. Page 7 of 112

8 The Statement of Financial Performance Elements 1.27 Income is defined as an increase in economic benefits or service potential during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions related to formation or addition of Chartered Capital (Statutory Fund) 1.28 Expenses are defined as a decrease in economic benefits or service potential during the accounting period in the form of outflows or depletions of assets or increases of liabilities that result in decreases in equity Recognition of the Elements of Financial Statements 1.29 Recognition of object in financial statements means that items, which meet the recognition criteria should be incorporated in the statement of financial position or statement of financial performance Items recognized in the statement of financial position or statement of financial performance should satisfy the following recognition criteria: (a) Meet the definition of one of elements of the financial statements; (b) It is probable that any future economic benefit or service potential associated with the item will flow to or from the non-government organisation; and (c) The item s cost or value can be measured, estimated or calculated with reliability The failure to recognize such items that should be recognized in the statement of financial position or statement of financial performance is not rectified by disclosure of the accounting policies used nor by notes and explanatory material If the item cannot be measured with reliability, it should be recognized on neither the statement of financial position nor statement of financial performance. However, the item may warrant disclosure in the notes to the financial statements if it considered to be relevant to the evaluation of the financial position of the non-government organisation. Recognition of Assets 1.33 An asset is only recognized when it is probable that the future economic benefits or service potential will flow to the non-government organisation and that the value of the asset can be reliably measured. Recognition of Liabilities 1.34 A liability is recognized in the statement of financial position when it is probable that an outflow of economic resources embodying future economic benefits or service potential will result from the settlement of a present obligation arising from a past event and the amount at which the settlement will take place can be measured reliably Future obligations are not recognized as liabilities if the event which is expected to give rise to an obligation is not a past event. For example, the obligation of the non-government organisation to buy assets in a future are generally not recognized as the present liability in the reporting period. Recognition of income 1.36 Income is recognized when an increase in the future economic benefits or service potential related to an increase in an asset or a decrease of a liability has arisen and can be measured reliably. Recognition of expenses 1.37 Expenses are recognized when a decrease in future economic benefits or service potential related to a decrease in an asset or increase of a liability has arisen that can be measured reliably Specific expenses frequently relate directly to specific revenues. In such circumstances both are to be recognized simultaneously under the matching concept. Page 8 of 112

9 1.39 Where expenses cannot be directly matched to income they should be apportioned on a systematic and consistent basis. The allocation procedure should recognize the expense in the periods in which the economic benefits are expected to occur An expense is recognized immediately in the statement of financial performance when expenditure produces no future economic benefits or service potential or when future economic benefits or service potential do not satisfy recognition criteria or cease to satisfy these criteria in the statement of financial position as an asset An expense is also recognized in the statement of financial performance when a liability is incurred without the simultaneous recognition of an asset. Measurement of the Elements of Financial Statements 1.42 Measurement is the determination of the monetary value at which an item will be disclosed on either the statement of financial position or the statement of financial performance The following bases might be used for measurement: (a.) Historical (Initial) Cost The historical cost measurement means that assets are recorded at the amount of cash or cash equivalents paid or the fair value of any other consideration, such as non-monetary assets transferred or obligations assumed, issued chartered capital, given to acquire them at the time of their acquisition. The measurement of liabilities on the basis of its historical cost implies a measurement of such liabilities at the amount of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business or at the amount of cash or cash equivalents received in exchange of obligations or at fair value of any other means received. (b.) Current Cost The current cost measurement means that assets are carried at the amount of cash or cash equivalents that would have to be paid if the equivalent assets were to be acquired currently. Measurement of liabilities at current amount implies its measurement at nominal amount (undiscounted) of cash and cash equivalents that would be paid to settle the obligation. (c) Realizable value Realizable value measurement means that assets are carried at the amount of cash or cash equivalents that could be obtained by selling those assets in normal course of business. Measurement of liabilities at realizable value implies measurement of cash or cash equivalents expected to be paid at its nominal amount (undiscounted) to discharge the liability in the normal course of business. (d) Discounted value Present value measurement means that an asset is carried at the present discounted value of the future net cash inflows the asset is expected to generate in the normal course of business over the asset s expected economic life. Measurement of liabilities at present value implies measurement of the future net cash outflows at the present discounted value expected to be emerged from settlement the obligation in the normal course of business. (e) Fair Value Fair value means the measurement at the amount that an asset could be exchanged for or a liability settled, between knowledgeable, willing parties in an arm's length transaction. Measurement of liabilities at fair value implies the measurement at amount required to settle liabilities between knowledgeable, willing parties in an arm's length transaction Requirements of particular Section of this Standard determine different measurement bases that may be used in separate elements of the financial statements In some cases this Standard allows the use of a Mixed Measurement Basis (Modified Historical Cost). In such cases, different measurement bases can be applied to individual items in the same accounting period. Page 9 of 112

10 SECTION 2 Financial Statement Presentation Scope 2.1 This Section prescribes the manner in which general purpose financial statements should be presented to ensure comparability both with the non-government organization s financial statements of previous periods and with the financial statements of other non-government organizations. To achieve this objective, this Section sets out overall considerations for: (a) the presentation of financial statements; (b) (c) the structure of financial statements; and the minimum requirements for the content of financial statements prepared in accordance with this Standard. 2.2 This Section does not deal with recognition, measurement and disclosure of specific transactions and other events. These are dealt with in other Sections of this Standard. Definitions 2.3 The following terms are used in this Section with the meanings specified: Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid). Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate. The elements recognized under accrual accounting are assets, liabilities, net assets/equity, revenue and expenses. Accounting policy is the set of specific principles, bases, conventions, rules and practices adopted by an enterprise subject to its peculiarities to prepare and present financial statements. Financial statements are a structured representation of the financial position and financial performance of an entity intended to meet the needs of users who are not in a position to demand reports tailored to meet their specific information needs. Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. Material Omissions or misstatements of items are material if they could, individually or collectively, influence the decisions or assessments of users made on the basis of the financial statements. Materiality depends on the nature and size of the omission or misstatement judged in the surrounding circumstances. The nature or size of the item, or a combination of both, could be the determining factor. Notes contain information in addition to that presented in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and cash flow statement. Notes provide narrative descriptions or disaggregations of items disclosed in those statements and information about items that do not qualify for recognition in those statements. Purpose of Financial Statements 2.4 The purpose of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making and evaluating decisions about the allocation of resources. Specifically, the objectives of financial reporting by non-government organizations is to provide information useful for decisionmaking and to demonstrate the accountability of the entity for the resources entrusted to it by: (a) (b) Providing information about the sources, allocation and uses of financial resources; Providing information about how the entity financed its activities and met its cash requirements; Page 10 of 112

11 (c) (d) (e) Providing information that is useful in evaluating the entity s ability to finance its activities and to meet its liabilities and commitments; Providing information about the financial condition of the entity and changes in it; and Providing aggregate information useful in evaluating the entity s performance in terms of service costs, efficiency and accomplishments Financial statements can also have a predictive or prospective role, providing information useful in predicting the level of resources required for continued operations, the resources that may be generated by continued operations, and the associated risks and uncertainties. Specifically financial reporting by budget organizations provides users with information: (a) Indicating whether resources were obtained and used in accordance with the budget approved by the relevant organ of the non-government organisation; and (b) Indicating whether resources were obtained and used in accordance with legal and contractual requirements To meet these objectives, the financial statements provide information about a non-government organization s: (a) Assets; (b) Liabilities; (c) Net assets/equity; (d) Revenue; (e) Expenses; (f) Other changes in net assets/equity; and (g) Cash flows. 2.7 Supplementary information, including non-financial statements, may be reported alongside the financial statements in order to provide a more comprehensive picture of the organisation s activities during the period. Responsibility for Financial Statements 2.8 The responsibility for the preparation and presentation of financial statements by budget organizations is governed by the provisons of the Accounting Law of the Azerbaijan Republic. Components of Financial Statements 2.9 A complete set of financial statements comprises: (a) A statement of financial position; (b) A statement of financial performance; (c) A statement of changes in net assets/equity; (d) A cash flow statement; (e) When the entity makes publicly available its approved budget, a comparison of budget and actual amounts either as a separate additional financial statement or as a budget column in the financial statements; and (f) Significant accounting policies and other explanatory notes. Fair Presentation and Compliance with NASNGO Financial statements shall present fairly the financial position, financial performance and cash flows of a non-government organization. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, revenue and expenses set out in this Standard The appropriate application of this Standard, with additional disclosures when necessary, results in financial statements prepared in accordance with fair presentation principle A non-government organization whose financial statements comply with this Standard shall make an explicit and unreserved statement of such compliance in the notes Financial statements shall not be described as complying with this Standard unless they comply with all the requirements of it A fair presentation also requires an entity: Page 11 of 112

12 (a) (b) (c) To select and apply accounting policies in accordance with Section 8 of this Standard, Accounting Policies, Changes in Accounting Estimates and Errors. To present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information. To provide additional disclosures when compliance with the specific requirements in this Standard is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity s financial position and financial performance Accounting rules contradicting NASNGO are not rectified either by disclosure of the accounting policies used, or by notes or explanatory material. Going Concern 2.16 When preparing financial statements an assessment of a non-government organization s ability to continue as a going concern shall be made. This assessment shall be made by those responsible for the preparation of financial statements. Financial statements shall be prepared on a going concern basis unless there is an intention to liquidate the non-government organization or to cease operating, or if there is no realistic alternative but to do so. When those responsible for the preparation of the financial statements are aware, in making their assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the nongovernment organization s ability to continue as a going concern, those uncertainties shall be disclosed. When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern In assessing whether the going concern basis is appropriate, those responsible for the preparation of financial statements may need to consider a wide range of factors relating to current and expected performance, potential and announced restructurings of organizational units, estimates of revenue or the likelihood of continued members or donors funding, and potential sources of replacement financing before it is appropriate to conclude that the going concern assumption is appropriate. Consistency of Presentation 2.18 The presentation and classification of items in the financial statements shall be retained from one period to the next unless: (a) It is apparent, following a significant change in the nature of the non-government organization s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in Section 9 of this Standard, Accounting Policies, Changes in Accounting Estimates and Errors. ; or (b) A particular Section of this Standard requires a change in presentation A non-government organization changes the presentation of its financial statements only if the changed presentation provides information that is reliable and is more relevant to users of the financial statements and the revised structure is likely to continue, so that comparability is not impaired. When making such changes in presentation, a non-government organization reclassifies its comparative information in accordance with paragraphs 3.26 and 3.27 Materiality and Aggregation 2.20 Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar nature or function shall be presented separately unless they are immaterial An item that is not sufficiently material to warrant separate presentation on the face of the financial statements may nevertheless be sufficiently material that it should be presented separately in the notes Applying the concept of materiality means that a specific disclosure requirement in this Standard need not be satisfied if the information is not material. Offsetting Page 12 of 112

13 2.23 Except for those items set out in paragraph 2.24, assets and liabilities, and revenue and expenses, shall not be offset unless required or permitted by a particular Section of this Standard Gains and losses arising from a group of similar transactions are reported on a net basis where they are not material. Comparative Information 2.25 Except when this Standard permits or requires otherwise, comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current period s financial statements When the presentation or classification of items in the financial statements is amended, comparative amounts shall be reclassified unless the reclassification is impracticable. When comparative amounts are reclassified, a non-government organization shall disclose: (a) The nature of the reclassification; (b) The amount of each item or class of items that is reclassified; and (c) The reason for the reclassification When it is impracticable to reclassify comparative amounts, a non-government organization shall disclose: (a) The reason for not reclassifying the amounts; and (b) The nature of the adjustments that would have been made if the amounts had been reclassified. Identification of the Financial Statements 2.28 The financial statements shall be identified clearly and distinguished from other information in the same published document This Standard applies only to financial statements, and not to other information presented in an annual report or other document Each component of the financial statements shall be identified clearly. In addition, the following information shall be displayed prominently, and repeated when it is necessary for a proper understanding of the information presented: (a) The name of the reporting non-government organization or other means of identification and any change in that information from the preceding reporting date; (b) The reporting date or the period covered by the financial statements, whichever is appropriate to that component of the financial statements; (c) The presentation currency; and (d) The level of rounding used in presenting amounts in the financial statements Financial statements are often made more understandable by presenting information in thousands or millions of units of the presentation currency. This is acceptable as long as the level of rounding in presentation is disclosed and material information is not omitted. Reporting Period Financial statements shall be presented at least annually. When a non-government organizations s reporting date changes and the annual financial statements are presented for a period longer or shorter than one year, that non-government organization shall disclose, in addition to the period covered by the financial statements: (a) (b) The reason for using a longer or shorter period; and The fact that comparative amounts for certain statements such as the statement of financial performance, statement of changes in net assets/equity, cash flow statement and related Timeliness 2.33 A non-government organization shall prepare, present and publish its financial statements in accordance with the requirements of the Accounting Law of the Azerbaijan Republic. Page 13 of 112

14 SECTION 3 Statement of Financial Position Scope 3.1 A non-government organization which prepares and presents financial statements under this Standard should prepare a statement of financial position in accordance with the requirements of this Section and should present it as an integral part of its financial statements for each period for which financial statements are presented. Definitions 3.2 The following terms are used in this Section with the meanings specified: Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity. Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential Net assets/equity is the residual interest in the assets of the entity after deducting all its liabilities. Realized the asset is considered as realized when it has been converted in cash or cash equivalents. Current/Non-current Distinction 3.3 A non-government organization shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its statement of financial position in accordance with paragraphs 3.4 to Current Assets 3.4 An asset shall be classified as current when it satisfies any of the following criteria: (a) It is expected to be realized in, or is held for sale or consumption in, the entity s normal operating cycle; (b) It is held primarily for the purpose of being traded; (c) It is expected to be realized within twelve months after the reporting date; or (d) It is cash or a cash equivalent All other assets shall be classified as non-current. 3.5 Current assets include assets that are either, consumed or sold, as part of the normal operating cycle even when they are not expected to be realized within twelve months after the reporting date. Current assets also include assets held primarily for the purpose of being traded and the current portion of non-current financial assets. Current Liabilities 3.6 A liability shall be classified as current when it satisfies any of the following criteria: (a) It is expected to be settled in the entity s normal operating cycle; (b) It is held primarily for the purpose of being traded; (c) It is due to be settled within twelve months after the reporting date; or (d) The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. All other liabilities shall be classified as non-current. 3.7 Some current liabilities, such as some accruals for employee and other operating costs, are part of the working capital used in the entity s normal operating cycle. Such operating items are Page 14 of 112

15 classified as current liabilities even if they are due to be settled more than twelve months after the reporting date. 3.8 Current liabilities also include financial liabilities classified held for trading, bank overdrafts, and the current portion of non-current financial liabilities, income taxes and other non-trade payables. Financial liabilities that provide financing on a long-term basis (i.e., are not part of the working capital used in the entity s normal operating cycle) and are not due for settlement within twelve months after the reporting date are non-current liabilities, subject to paragraphs 4.11 and A non-government organization classifies its financial liabilities as current when they are due to be settled within twelve months after the reporting date, even if: (a) The original term was for a period longer than twelve months; and (b) An agreement to refinance, or to reschedule payments, on a longterm basis is completed after the reporting date and before the financial statements are authorized for issue If a non-government organization expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting date under an existing loan facility, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period. However, when refinancing or rolling over the obligation is not at the discretion of the nongovernment organization, the potential to refinance is not considered and the obligation is classified as current When a non-government organization breaches an undertaking under a long-term loan agreement on or before the reporting date with the effect that the liability becomes payable on demand, the liability is classified as current, even if the lender has agreed, after the reporting date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. The liability is classified as current because, at the reporting date, the nongovernment organization does not have an unconditional right to defer its settlement for at least twelve months after that date However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least twelve months after the reporting date, within which the non-government organization can rectify the breach and during which the lender cannot demand immediate repayment In respect of loans classified as current liabilities, if the following events occur between the reporting date and the date the financial statements are authorized for issue, those events qualify for disclosure as non-adjusting events in accordance with Section 23 of this Standard, Events after the Reporting Date : (a) Refinancing on a long-term basis; (b) (c) Rectification of a breach of a long-term loan agreement; and The receipt from the lender of a period of grace to rectify a breach of a long-term loan agreement ending at least twelve months after the reporting date. Information to be Presented on the Face of the Statement of Financial Position 3.14 As a minimum, the face of the statement of financial position should include items which present the following: (a) Property, plant and equipment; (b) Investment property; (c) Intangible assets; (d) Financial assets (excluding amounts shown under, (f), (g) and (h)); (e) Inventories; (f) Receivables from non-exchange transactions (membership fees, donations and etc.); (g) Receivables from exchange transactions; (h) Cash and cash equivalents; (i) Income tax payable; (j) Payables under non-exchange transactions (other than taxes and duties payable) (k) Payables under exchange transactions; (l) Provisions; (m) Financial liabilities (excluding amounts shown under (i), (j), (k) and (l)); (n) Net assets/equity. Page 15 of 112

16 3.15 Additional line items, headings and sub-totals shall be presented on the face of the statement of financial position when such presentation is relevant to an understanding of the non-government organizations s financial position. In addition: (a) Line items are included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entity s financial position; and (b) The descriptions used and the ordering of items or aggregation of similar items may be amended according to the nature of the non-government organization and its transactions, to provide information that is relevant to an understanding of the nongovernment organization s financial position The judgment on whether additional items are separately presented is based on an assessment of: (a) the nature and liquidity of assets and their materiality; (b) their function within the enterprise; (c) the amounts, nature and timing of liabilities Assets and liabilities that differ in nature or function are sometimes subject to different measurement bases. In such cases they should be presented in financial statements as separate items. Information to be Presented Either on the Face of the Statement of Financial Position or in the Notes A non-government organization shall disclose, either on the face of the statement of financial position or in the notes, further sub-classifications of the line items presented, classified in a manner appropriate to the non-government organization s operations The detail provided in sub-classifications, either on the face of the statement of financial position or in the notes depends on the requirements of particular Sections of this Standard and the size, nature and function of the items reported. The factors set out in paragraph 4.16 also are used to decide the basis of sub-classification 3.20 A non-government organisation shall disclose net assets/equity, showing separately either on the face of the statement of financial position or in the notes: (a) Chartered Capital (Statutory Fund); (b) Accumulated surpluses or deficits; (c) Reserves, including a description of the nature and purpose of each reserve within net assets/equity. Page 16 of 112

17 SECTION 4 Statement of Financial Performance Scope 4.1 A non-government organization which prepares and presents financial statements under this Standard should prepare a statement of financial performance in accordance with the requirements of this Section and should present it as an integral part of its financial statements for each period for which financial statements are presented. Definitions 4.2 The following terms are used in this Section with the meanings specified: Expenses are decreases in economic benefits or service potential during the reporting period in the form of outflows or consumption of assets or incurrence of liabilities that result in decreases in net assets/equity. Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets/equity, other than increases relating to formation or addition of Chartered Capital (Statutory Fund). Surplus or Deficit for the Period 4.3 All items of revenue and expense recognized in a period shall be included in surplus or deficit unless a particular Section of this Standard requires otherwise. Information to be Presented on the Face of the Statement of Financial Performance 4.4 As a minimum, the face of the statement of financial performance shall include line items that present the following amounts for the period: (a) Income; (b) Expenditures; (c) Income tax on commercial activities (d) Surplus or deficit. 4.5 Additional line items, headings and subtotals shall be presented on the face of the statement of financial performance when such presentation is relevant to an understanding of the nongovernment organization s financial performance. Information to be Presented either on the Face of the Statement of Financial Performance or in the Notes 4.6 When items of revenue and expense are material, their nature and amount shall be disclosed separately. 4.7 A non-government organization shall present, either on the face of the statement of financial performance or in the notes, a sub-classification of total revenue, classified in a manner appropriate to the non-government organization s operations. 4.8 A budget organization shall present, either on the face of the statement of financial performance or in the notes, an analysis of expenses using a classification based on the nature of expenses. 4.9 Under the nature of expense method expenses are aggregated in the statement of financial performance according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs), and are not reallocated among various functions within the entity. This method may be simple to apply because no allocations of expenses to functional classifications are necessary. Page 17 of 112

18 4.10 As expenses are divided into cost of implemented works, administrative cost and other expenditures in line with functional method of expenditures, it s easy to apply that method Non-governmental organization classifying expenditures according to their functions should disclose supplementary information on nature of expenses, including, non-material depreciation and staff costs. Page 18 of 112

19 SECTION 5 Statement of Changes in Net Assets/Equity Scope 5.1 A non-government organization which prepares and presents financial statements under this Standard should prepare a statement of changes in net assets/equity in accordance with the requirements of this Section and should present it as an integral part of its financial statements for each period for which financial statements are presented. Definitions 5.2 The following terms are used in this Section with the meanings specified: Chartered Capital - is the amount of entity s capital determined in the constituent documents, registered within the legal terms. Contributed Funds are Initial and additional contributions into the non-government s organization Chartered Capital. Accumulated Funds are the balance as at the reporting date which emanate from inflow and outflow of net assets accumulated throughout the existence of the non-government organization. Equity (Fund) reserves are a part of the net assets accumulated and reserved for specific purposes as required by legislation, non-governments organization s Charter or established by the decision of non-government organization s appropriate governing body. 5.3 A non-government organization shall present a statement of changes in net assets/equity showing on the face of the statement: (a) Surplus or deficit for the period in case of involvement in commercial activities; (b) For each component of net assets/equity separately disclosed, the effects of corrections of errors recognized in accordance with Section 8 of this Standard Accounting Policies, Changes in Accounting Estimates and Errors. (c) The amounts of initial and additional contributions into the Chartered capital; (d) The balance of accumulated net assets (equity) at the beginning of the period and at the reporting date, and the changes during the period; (e) The balance of established reserves at the beginning of the period and at the reporting date, and the changes during the period; and 5.4 The requirements in paragraph 5.3 shall be met by using a columnar format that reconciles the opening and closing balances of each element within net assets/equity. Page 19 of 112