ACCOUNTING STANDARD NOT-FOR-PROFIT ORGANIZATIONS

Transcription

1 ACCOUNTING STANDARD NOT-FOR-PROFIT ORGANIZATIONS

2 Table of contents Accounting framework Scope General concepts Specific requirements Practical illustrations

3 Accounting framework IFRS IFRS for SMEs AFRS for MSEs AFRS for SSEs NGO Guidelines Others

4 NPO An overview NPOs are organizations Formed for non-profit purposes Without transferable ownership interest Members / contributors do not receive any direct financial interest NPOs may include Charities / Foundations Welfare organizations Professional and trade associations Institutions

5 Scope of the Standard Size Annual Revenue Framework Large Sized More than Rs.500 million IFRS (IASB) Medium Sized Between Rs.100 million and Rs.500 million IFRS for SMEs (IASB) Small Sized Not in any other category AFRS for SSEs (ICAP) Micro Less than Rs.10 million (Not registered under the CO, 1984) Cash receipt and disbursement basis

6 NPO Standard General concepts Objective of financial statements Contents of financial statements Characteristics of financial statements Financial statements assertions

7 Financial statements Objective Fair presentation of financial results to provide information to the users of financial statements for decision making The objective is achieved through: Specific contents Qualitative characteristics

8 Financial statements Contents Statement of financial position Statement of income and expenditure Statement of changes in net assets Statement of cash flows Notes to the accounts Other statements

9 Financial statements Contents (Cont d ) Statement of financial position Description of assets and liabilities similar to profit oriented entities No shareholders equity and the difference of assets and liabilities is shown as net assets or fund balance May present assets / liabilities using fund accounting Statement of income and expenditure Reflects net income / surplus similar to profit oriented entities May classify expenses by: Nature (Salaries, rent, utilities etc. Functions (administrative, research) Programs (education, health) May present activities using fund accounting

10 Qualitative characteristics Understandability Relevance Timeliness Materiality Reliability Substance over form Completeness Comparability

11 Underlying assumptions Going concern Accrual basis

12 NPO Standard Specific requirements Fund accounting Inventories Fixed assets Related party transactions

13 Fund accounting Only applicable for NPOs No requirements in IFRS and other reporting frameworks Specific accounting and disclosure requirements

14 Contributions Contributions are revenue from primary sources (donations / grants) May be in the form of cash or assets Contributions - revenue or deferred grant

15 Contributions Practical examples An NPO has received donation of Rs.10 million from an international donor with no restrictions. The amount is placed in a bank and profit of Rs.500,000 was earned during the year An NPO has received donation of Rs.10 million from an international donor which has to be spent in 3 years A motor vehicle has been donated to an NPO for flood relief work

16 Funds Residual balance of contributions Reflects the net assets General / multiple funds

17 Nature of funds Funds Unrestricted funds Restricted funds Endowment fund General fund External restrictions Internal restrictions Designated funds

18 Contributions revenue recognition Recognition criteria Restricted fund method Deferral method Consistent application Change in accounting policy

19 Restricted fund method Contribution Unrestricted contribution Restricted contribution Endowment contribution Recognize as revenue of the general fund Recognize as revenue of respective funds and appropriations are made Recognize as revenue of the endowment fund

20 Restricted fund method Income and expenditure account Endownment Unrestricted Restricted Total (Rs. in million) INCOME Contributions received during the year Other income EXPENDITURE Operating and administrative expense - (30) (70) (100) Surplus for the year Balance brought forward Balance carried to balance sheet

21 Restricted fund method Balance sheet ASSETS (Rs. in million) NON-CURRENT ASSETS Property and equipment - Restricted 70 - Unrestricted CURRENT ASSETS Cash and bank balances 40 TOTAL ASSETS 140 FUND AND LIABILITIES FUNDS Endownment fund 20 General / unrestricted fund 40 Restricted fund CURRENT LIABILITIES Accrued and other liabilities 10 TOTAL FUND AND LIABILITIES 140

22 Deferral method Contribution Unrestricted contribution Restricted contribution Endowment contribution Recognize as revenue Recognize as deferred contribution (liability) and taken to revenue to the extent of expenses Recognize as direct increase in net assets

23 Deferred method Income and expenditure account Restricted Unrestricted Total (Rs. in million) INCOME Contributions received during the year Other income EXPENDITURE Operating and administrative expense (50) (55) (105) (Deficit) / surplus for the year (50) 5 (45) Transferred from restricted funds Net surplus for the year - 5 5

24 Deferral method Balance sheet ASSETS (Rs. in million) NON-CURRENT ASSETS Property and equipment - Restricted 50 - Unrestricted CURRENT ASSETS Cash and bank balances 30 TOTAL ASSETS 90 FUND AND LIABILITIES FUNDS Endownment fund 10 General / unrestricted fund NON-CURRENT LIABILITIES Deferred grant / restricted fund 60 CURRENT LIABILITIES Account and other liabilities 5 TOTAL FUND AND LIABILITIES 90

25 Presentation of revenues and expenses Revenues and expenses recognised and presented at gross amount Income reported on net basis

26 Presentation of revenues and expenses Practical examples An NPO engages in a fund raising telethon. The organization uses it s own staff and volunteers to conduct the telethon An NPO engages in a fundraising telethon. The organization uses an outside fundraising consultant to conduct the telethon An NPO is given the net proceeds from an event held by others to benefit the organization

27 Inventories Inventories are materials or services received as donations NPOs are not required to record inventories Measured at fair value at the time of contribution Inventories held for distribution at no charge / nominal charge are recognized at lower of cost and replacement cost

28 Recognition of inventories Practical examples An NPO has received inventory item as donation. The original cost of that item is Rs.10,000 and the current market price is Rs.120,000 The NPO intends to distribute the above item free of cost. The carrying value is Rs.9,000 and current purchase price is Rs.8,000 An NPO regularly receives services of various volunteers to run its business

29 Fixed assets tangible and intangible Same criteria as profit oriented entities Capitalised at cost and then depreciated / amortised except for assets having infinite life Assessment of useful life, residual value and impairment

30 Contributed assets Recognised at fair value at the time of contribution Fair value not determinable, recognized at nominal value (disclosure required) Assets purchased at value substantially below fair value Adjustment of impairment loss against deferred grant

31 Contributed assets Practical example An NPO has received a donation of fixed asset worth Rs.3 million donated for specific purpose with useful life of 5 years donated for general use with no useful life

32 Recognition of fixed assets Recognition criteria Probable that future economic benefits will flows to the entity Cost can be measured reliably Micro NPOs are not required to recognize fixed assets Recognized as expense Treatment in case of subsequent increase in revenue

33 Related party transactions Identified as related parties based on relevant accounting framework Similar considerations for control, joint control and significant influence Economic interest Entity holds resources for the benefit of other entity Entity responsible for the liabilities of other entity

34 Related parties - Practical examples An NPO receives donations from the following donors A B C Rupees 50 million 5 million 1 million An NPO has obtained a long term financing from a bank. XYZ (which is also a minor donor of the NPO), has provided an unconditional guarantee to the bank for the above loan ABC performs a significant function on behalf of an NPO ABC is the only donor for NPO X and NPO Y