Accounting Standards For NGOs

ACCOUNTING STANDARD
NOT-FOR-PROFIT ORGANIZATIONS
The Institute of Chartered Accountants of Pakistan
Table of contents
Accounting framework
Scope
General concepts
Specific requirements
Practical illustrations
Accounting framework
IFRS
IFRS for SMEs
AFRS for MSEs
AFRS for SSEs
NGO Guidelines
Others
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
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
NPO Standard General concepts
Objective of financial statements
Contents of financial statements
Characteristics of financial statements
Financial statements assertions
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
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
Financial statements Contents (Contd)
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
Qualitative characteristics
Understandability
Relevance
Timeliness
Materiality
Reliability
Substance over form
Completeness
Comparability
Underlying assumptions
Going concern
Accrual basis
NPO Standard Specific requirements
Fund accounting
Inventories
Fixed assets
Related party transactions
Fund accounting
Only applicable for NPOs
No requirements in IFRS and other reporting

frameworks
Specific accounting and disclosure requirements
Contributions
Contributions are revenue from primary sources

(donations / grants)
May be in the form of cash or assets
Contributions - revenue or deferred grant
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
Funds
Residual balance of contributions
Reflects the net assets
General / multiple funds
Nature of funds
Funds
Unrestricted
funds
General
fund
Restricted
funds
External
restrictions
Endowment
fund
Internal
restrictions
Designated
funds
Contributions revenue recognition

Recognition
criteria
Restricted
fund method
Deferral method
Consistent
Change
application
in accounting policy
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
Restricted fund method Income and expenditure account

Endownment Unrestricted Restricted
-------------(Rs. in million)------------INCOME
Contributions received during the year
Other income
Total
10
10
40
10
50
100
100
150
10
160
EXPENDITURE
Operating and administrative expense
Surplus for the year
Balance brought forward
10
10
(30)
20
20
(70)
30
40
(100)
60
70
Balance carried to balance sheet
20
40
70
130
Restricted fund method Balance sheet

(Rs. in million)
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
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
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
10
60
50
10
60
(50)
(50)
50
(55)
5
-
(105)
(45)
50
Deferral method Balance sheet

(Rs. in million)
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
TOTAL FUND AND LIABILITIES
90
Presentation of revenues and expenses
Revenues and expenses recognised and presented at

gross amount
Income reported on net basis
Presentation of revenues and expenses Practical examples
An NPO engages in a fund raising telethon. The

organization uses its 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
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
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
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
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
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
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
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
Related parties - Practical examples
An NPO receives donations from the following donors

Rupees
A
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


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ACCOUNTING STANDARD

The Institute of Chartered Accountants of Pakistan

The Institute of Chartered Accountants of Pakistan

The Institute of Chartered Accountants of Pakistan

NPOs may include

The Institute of Chartered Accountants of Pakistan

Scope of the Standard

More than Rs.500 million

Between Rs.100 million and

IFRS for SMEs (IASB)

Not in any other category

AFRS for SSEs (ICAP)

Less than Rs.10 million

Cash receipt and

The Institute of Chartered Accountants of Pakistan

NPO Standard General concepts

Objective of financial statements

Contents of financial statements

Characteristics of financial statements

Financial statements assertions

The Institute of Chartered Accountants of Pakistan

Financial statements Objective

Fair presentation of financial results to provide information

The objective is achieved through:

The Institute of Chartered Accountants of Pakistan

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

The Institute of Chartered Accountants of Pakistan

Financial statements Contents (Contd)

Statement of financial position

Description of assets and liabilities similar to profit oriented entities

No shareholders equity and the difference of assets and liabilities

May present assets / liabilities using fund accounting

Statement of income and expenditure

The Institute of Chartered Accountants of Pakistan

The Institute of Chartered Accountants of Pakistan

The Institute of Chartered Accountants of Pakistan

NPO Standard Specific requirements

Related party transactions

The Institute of Chartered Accountants of Pakistan

Only applicable for NPOs

No requirements in IFRS and other reporting

Specific accounting and disclosure requirements

The Institute of Chartered Accountants of Pakistan

Contributions are revenue from primary sources

May be in the form of cash or assets

Contributions - revenue or deferred grant

The Institute of Chartered Accountants of Pakistan

Contributions Practical examples

An NPO has received donation of Rs.10 million from an

An NPO has received donation of Rs.10 million from an

A motor vehicle has been donated to an NPO for flood

The Institute of Chartered Accountants of Pakistan

Residual balance of contributions

Reflects the net assets

General / multiple funds

The Institute of Chartered Accountants of Pakistan

The Institute of Chartered Accountants of Pakistan