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ACCOUNTING A CCOUNTING STA STA NDA NDARD RD – “ NOT NOT-FOR-PROFIT -FOR-PROFIT ORGA ORGANIZATIONS” NIZATIONS”
The Instit ute of Chartered Acc oun ountants tants of Pakist an
Tabl ble e of co cont nte ent nts s ►
Accounting framework
►
Scope
►
Gene Ge nera rall co conc ncep epts ts
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Specif Spe cific ic req requir uireme ements nts
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Practi Pra ctical cal illu illustr strati ation ons s
The Instit ute of Chartered Acc oun ountants tants of Pakist an
Ac A c c o u n t i n g f r am amew ewo ork ►
IFRS
►
IFRS for SMEs
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AFRS for MSEs
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AFRS for SSEs
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NGO NG O Gu Guid idel elin ines es
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Others
The Instit ute of Chartered Acc oun ountants tants of Pakist an
NPO – An overview ►
►
NPOs are organizations ►
Formed for non-profit purposes
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Without transferable ownership interest
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Members / contributors do not receive any direct financial interest
NPOs may include ►
Charities / Foundations
►
Welfare organizations
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Professional and trade associations
►
Institutions
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
NPO Standard – General concepts ►
Objective of financial statements
►
Contents of financial statements
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Characteristics of financial statements
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Financial statements assertions
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
Financial statements – Contents ►
Statement of financial position
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Statement of income and expenditure
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Statement of changes in net assets
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Statement of cash flows
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Notes to the accounts
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Other statements
The Instit ute of Chartered Acc ountants of Pakist an
Financial statements – Contents ►
►
(Cont’d…)
Statement of fi nancial 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
The Instit ute of Chartered Acc ountants of Pakist an
Qualitative characteristics ►
Understandability
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Relevance
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►
►
Timeliness
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Materiality
Reliability ►
Substance over form
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Completeness
Comparability
The Instit ute of Chartered Acc ountants of Pakist an
Underlying assumptions ►
►
Going concern Accrual basis
The Instit ute of Chartered Acc ountants of Pakist an
NPO Standard – Specific requirements ►
Fund accounting
►
Inventories
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Fixed assets
►
Related party transactions
The Instit ute of Chartered Acc ountants of Pakist an
Fund accounting ►
Only applicable for NPOs
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No requirements in IFRS and other reporting frameworks
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Specific accounting and disclosure requirements
The Instit ute of Chartered Acc ountants of Pakist an
Contributions ►
Contributions are revenue from primary sources (donations / grants)
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May be in the form of cash or assets
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Contributions - revenue or deferred grant
The Instit ute of Chartered Acc ountants of Pakist an
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
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An NPO has received donation of Rs.10 million from an international donor which has to be spent in 3 years
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A motor vehicle has been donated to an NPO for flood relief work
The Instit ute of Chartered Acc ountants of Pakist an
Funds ►
Residual balance of contributions
►
Reflects the net assets
►
General / multiple funds
The Instit ute of Chartered Acc ountants of Pakist an
Nature of funds
Funds
Unrestricted funds
General fund
Restricted funds
External restrictions
Endowment fund
Internal restrictions
Designated funds
The Instit ute of Chartered Acc ountants of Pakist an
Contributions – revenue recognition ►
Recognition criteria Restricted fund method ► Deferral method ►
►
Consistent application
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Change in accounting policy
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
Restricted fund method – Income and expenditure account Endownment Unrestricted Restricted -------------(Rs. in million)------------INCOME Contributions received during the year Other income
EXPENDITURE Operating and administrative expense Surplus for the year Balance brought forward Balance carried to balance sheet
10 10
-
40 10 50
10 10
(30) 20 20
20
40
The Instit ute of Chartered Acc ountants of Pakist an
Total
100 100
150 10 160
(70) 30 40
(100) 60 70
70
130
Restricted fund method – Balance sheet (Rs. in millio n) ASSETS NON-CURRENT ASSETS Property and equipment - Restricted - Unrestricted
CURRENT ASSETS Cash and bank balances
70 30 100
40 140
TOTAL ASSETS FUND AND LIABILITIES FUNDS Endownment fund General / unrestricted fund Restricted fund
20 40 70 130
CURRENT LIABILITIES Accrued and other liabilities
10
TOTAL FUND AND LIABILITIES
140
The Instit ute of Chartered Acc ountants of Pakist an
Deferral method Contribution
Unrestricted contribution
Recognize as revenue
Restricted contribution
Endowment contribution
Recognize as deferred contribution (liability) and taken to revenue to the extent of expenses
Recognize as direct increase in net assets
The Instit ute of Chartered Acc ountants of Pakist an
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 (Deficit) / surplus for the year Transferred from restricted funds Net surplus for the year
-
(50) (50) 50
-
The Instit ute of Chartered Acc ountants of Pakist an
50 10 60
50 10 60
(55) 5 -
(105) (45) 50
5
5
Deferral method – Balance sheet (Rs. in mill ion ) ASSETS NON-CURRENT ASSETS Property and equipment - Restricted - Unrestricted CURRENT ASSETS Cash and bank balances
50 10 60 30 90
TOTAL ASSETS FUND AND LIABILITIES FUNDS Endownment fund General / unrestricted fund
10 15 25
NON-CURRENT LIABILITIES Deferred grant / restricted fund
60
CURRENT LIABILITIES Account and other liabilities
5
TOTAL FUND AND L IABILITIES
90
The Instit ute of Chartered Acc ountants of Pakist an
Presentation of revenues and expenses ►
Revenues and expenses recognised and presented at gross amount
►
Income reported on net basis
The Instit ute of Chartered Acc ountants of Pakist an
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
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An NPO is given the net proceeds from an event held by others to benefit the organization
The Instit ute of Chartered Acc ountants of Pakist an
Inventories ►
Inventories are materials or services received as donations
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NPOs are not required to record inventories
►
Measured at fair value at the time of contribution
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Inventories held for distribution at no charge / nominal charge are recognized at lower of cost and replacement cost
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
Contributed assets ►
►
Recognised at fair value at the time of contribution Fair value not determinable, recognized at nominal value (disclosure required)
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Assets purchased at value substantially below fair value
►
Adjustment of impairment loss against deferred grant
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
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
The Instit ute of Chartered Acc ountants of Pakist an
Related party transactions ►
Identified as related parties based on relevant accounting framework
►
Similar considerations for control, joint control and significant influence
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Economic interest ► ►
Entity holds resources for the benefit of other entity Entity responsible for the liabilities of other entity
The Instit ute of Chartered Acc ountants of Pakist an
