WOLKITE UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTEMANTE OF ACCOUNTING AND FINANCE
COURSE TITLE;-Accounting for public sector and civil society

COURSE CODE:-AcFn3072
GROUP ASSIGNMENT

GROUP 5
SECTION -1

GROUP NAME....................................................................................ID NO

1 Leykun Mengistu.............................................................................. SSAD/202/13

2 Kasa Chukilisa....................................................................................SSAD/188/12
3 KIDEST BIRHANU..........................................................................SSR/1105/13
4 kIRUBEL TEZERA...........................................................................SSR/0569/13
5 LIBEN ENOW............................................................……………..SSR/0585/13
6 MEKONNEN ENAWGAW.............................................................SSR/0632/13
7 MELKIE MINALE...........................................................................SSAD/222/13

Submmited to:-Mulualem H
Submmition date :- 01/JAN/2023

WOLKITE ,ETHIOPIA

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Table of Contents page
INTRODUCTION...........................................................................................................................................3
1.Budgeting and performance Reporting.....................................................................................................4
1.1 Uses of Budgets.....................................................................................................................................4
1.2 Classifications of budgets......................................................................................................................5
1.2.1 Capital or Current...........................................................................................................................6
1.2.2Tentative or enacted.....................................................................................................................6
1.2.3 General or Special...............................................................................................................................7
1.2.4 Fixed or Flexible..................................................................................................................................7
1.3 Approaches to Budgeting......................................................................................................................7
1.3.1 Modern (Rational) Approaches to budgeting.....................................................................................7
1.3.2 Performance Budgeting......................................................................................................................8
1.3.3 PLANNING-PROGRAMMING-BUDGETING (PPB)..........................................................................9
1.3.4 Zero-Base-Budgeting (ZBB)...............................................................................................................10
1.3.5 TRADITIONAL APPROACH TO BUDGETING.......................................................................................11
1.4 BUDGETS AND OUTTURN REPORTING (IPSAS 24)................................................................................13
1.5 PERFORMANCE BUDGETING AND REPORTING....................................................................................14
2 . Accounting for other Not-Profit Entities...............................................................................................14
2.1 Characterstics of Non –governmental NFP organizations....................................................................16
2.2 charities and societies law in Ethiopia.................................................................................................17
2.3 Financial reporting and accounting for NGOs......................................................................................20
2.3.1. Accounting System........................................................................................................................22
CONCLUSION.............................................................................................................................................24
REFERNCES................................................................................................................................................25

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 INTRODUCTION

Budgeting is a process of looking at a business’ estimated incomes The charity and society
proclamation was adopted in 2009 by the House of Peoples Representative of the FDRE. It is
therefore important to distinguish among the various types of budgets, to understand the
phases through which each may pass and to be familiar with commonly used budgetary
terminology There are different types of budgetary approaches which differ to each other in
their emphasis on planning, control and evaluation. These approaches fall in to two categories:
Modern and Traditional Approaches. As mentioned in the introduction, IPSAS 24 requires
organizations to include a comparison of the budget amounts it is publicly accountable for and
actual amounts on a comparable basis and to explain any material differences between such
amounts. Budget Performance Report is the comparison of planned budget and actual
performance.

Not-for-Profit Organisations are organisations which are set up for the welfare of the society or
for the promotion of art and culture in the society. There are a few distinct features which
make them different from regular organizations. Charity or civil society has emerged as an
important catalyst of changes in the development and democratic processes at both the
national and international level. contend that an accounting system is a way of keeping a
written record of transactions .This law prohibits the Ethiopian resident and foreign charities
from engaging in human right issues and requiring judicial review of administrative decisions
They extend help free of cost or at a nominal price as profit making is not their motive. For
example, they provide services like health care, education, food, recreation, shelter, clothing,
sports facilities, etc.

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1.Budgeting and performance Reporting

Budgeting is a process of looking at a business’ estimated incomes (the money that

comes into the business from selling products and services) and expenditures (the
money that goes out form paying expenses and bills) over a specific period in the
future. It allows a business to see if they will be able to continue operating at their
expected level with these projected incomes and expenditures.

Budgeting is the process of allocating scarce resources to unlimited demands.

More specifically, it can be defined as a plan of financial operation embodying an
estimate of proposed expenditures for a given time and the proposed means of
financing them. Budget is a statement that shows the financial plan for
accomplishment of an operation. It is plan stated in terms of money. When we
assigned/estimate resources required for a certain task on our plan that is called
budgeting.
We might summarize the process of budgeting into three basic questions.
 Where will we get the money from?
 How much can we send?
 Why will we spend it?

1.1 Uses of Budgets

The purpose of a budget is to plan, organize, track, and improve your financial
situation. In other words, from controlling you’re spending to consistently saving
and investing a portion of your income, a budget helps you stay on course in
pursuit of your long-term financial goals.

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In FP, the primary usefulness of budgets is planning.
In governments –management plans and laws

Control the activities authorized to carry out plans

Prepare statement that permit comparison of actual results with budget and
evaluation of variances

Planning is a special concern for the following reasons:

1. The type, quantity and quality of governmental goods and services provided are
not normally evaluated and adjusted through the open market mechanism
2. Governmental goods/services (education, health, police etc) are often among the
most critical to the public interest
3. The immense scope and diversity of modern government activities make
comprehensive, thoughtful and systematic planning a pre-requisite to orderly
decision making
4. Government planning and decision making is generally a joint process involving
its citizens
Assumptions about GF Budget
Annual budget adopted on modified accrual (GAAP) basis

Appropriations are made for operating expenditures by function and for capital
outlay and debt service expenditures made directly in GF

Budget does not include appropriations for interfund transfers –assumes

interfund transfers are separately authorized

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 1.2 Classifications of budgets
States and local governments typically prepare and utilize several types of financial
plans. It is therefore important to distinguish among the various types of budgets,
to understand the phases through which each may pass and to be familiar with
commonly used budgetary terminology. There are five classifications of budgets
and two types within each classification.

1.2.1 Capital or Current

Sound governmental fiscal management requires continual planning for several
periods in to the future. Most governments are involved in programs to provide
certain goods and services continuously and/or for acquisition of capital items.
Multi-year schedule for acquisition of capital items is called capital program. At
the beginning of each year the balance that fall in the current period will be
included in the capital budget.
Capital budgets ;-deal with the acquisition of fixed assets. The legislature will
likely approve the acquisitions one year at a time. But planning for the acquisitions
several years in advance (called the Capital Program) is very helpful to wise
management of resources.
Typically used for acquisitions requiring several years Typically contains portion
for current year and for future years

Current budgets;- are concerned with the current year‘s operating expenditures,
sometimes called recurring expenditures, because similar sorts of expenditures are
needed year after year.
Also known as operating budget

Contains proposed expenditures for current operations, debt service, & estimates of
expendable resources to be available during the year

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1.2.2Tentative or enacted
One key distinction among budgets is their legal status. Various documents may be
called budgets prior to approval by the legislative body. As the name implies, the
tentative budget is still in process. It has not yet been officially approved. An
enacted budget has been officially approved and is a binding legal document.

1.2.3 General or Special

The names of this classification are not quite as they sound. Budgets of
governmental activities commonly financed through the General, Special Revenue,
and Debit Service Funds are referred as General budges.
General budget;- is typically used for general governmental activities financed
through General Fund, Special Revenue Funds, & Debt Service Funds
A budget prepared for any other fund is Special. Special budgets are commonly
limited to Capital project funds, though Enterprise and Internal service funds do
sometimes formally budgeted.
Special Budget;- is a budget enacted for any other type of activity.

1.2.4 Fixed or Flexible

Fixed budgets are for a fixed total dollar (or Birr) amount and cannot be exceeded.
The allocated amount should not be exceeded. A flexible budget, on the other hand,
fixes the cost per unit of goods and services. If more units of goods and services are
desired because of a change in circumstance or need, the dollar amount of a
flexible budget can increase.

1.3 Approaches to Budgeting

There are different types of budgetary approaches which differ to each other in
their emphasis on planning, control and evaluation. These approaches fall in to two
categories: Modern and Traditional Approaches
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1.3.1 Modern (Rational) Approaches to budgeting
The modern approaches to budgeting are sometimes called rational. That is
because they all advocate thinking carefully about the relationship of inputs, with a
special concern for the outputs. Outputs are the goods or services actually
provided; inputs are the resources that go in providing those goods or services.
Thinking carefully also involves analyzing the costs and benefits of alternative
methods of achieving objectives. The ―big-picture is the idea that lawmaking
bodies should focus on broad policy objectives rather than details of spending for
particular departments is emphasized. Long term, ultimate goals are stressed rather
than annual budget requests. Attention is directed to continual evaluation of
services which are being performed. The different modern approaches are
considered; each one is explained briefly, below.

1.3.2 Performance Budgeting

Performance budget is a budget that bases expenditures primarily up on
measurable performance of activities and work programs. It focuses on the outputs
generated by the department or organizational unit, rather than looking primarily at
the cost of the inputs. In this type budgets attempt will be made to relate the input
of governmental resources to the output of governmental services. To provide the
legislative body with a reasonable justification for its budget requests, each
department must do some clear thinking about what it is trying to do and how best
to do it.
Under, PB, budgeted expenditures are based on a standard cost of inputs multiplied
by the number of units of an activity to be provided in that time period. The total
budget for an organization is the sum of all the standard unit costs multiplied by
the units expected to be provided

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The performance budget is mainly concerned with only one year at a time.
Basically, the process of making the budget may be summarized as follows:
1. The governmental entity decides what type of services to offer.
2. The entity decides how many units of the service to offer.
3. The cost of one unit of the service is calculated.
4. The budget is determined by multiplying units of service by the cost per unit.
Advantage
1. It emphasis on inclusion of narrative description of each proposed activity
within the proposed budget
2. Organization of the budget by activities, with requests supported by estimates of
costs and accomplishments in the quantitative terms and
3. Its emphasis on the need to measure output and input
Limitations
This approach is fundamentally sound but has the following drawbacks
1. Many government services and activities do not appear readily measurable in
meaningful output units or unit cost terms
2. This style makes data gathering difficult and impossible
3. Need highly qualified skill man power.

1.3.3 PLANNING-PROGRAMMING-BUDGETING (PPB)

Program budgeting refers to a variety of different budgeting systems that base
expenditures primarily on programs of work and secondarily on objects
PPB emphasizes broad policy goals, strategies and objectives, rather than details of
spending. In looking at these broad goals and objectives, it considers long-range
plans. In those long range plans both ultimate goals and intermediate objectives
must be explicitly stated. After formulating the long-range plans, it then evaluates

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costs and benefits of different ways of meeting the goals and objectives. It also
emphasized the government‘s overall program, rather than a specific department.
For instance, both the Ministry of Health and the Ministry of Education might have
some sort of AIDS program – one for treatment and one for education. If the idea
of PPB were adopted, both of these programs would be looked at together to see
they complemented each other in meeting the government‘s overall objectives.
Distinctive characteristics of PPB
1. It focuses on identifying the fundamental objectives of the government and then
relating all activities to them
2. Future year implications are explicitly identified
3. All pertinent costs are considered
4. Systematic analysis of alternatives is performed
Advantages
1. Unlike performance and traditional budgeting which based principally on
historical data and focus in single period, PPB emphasizes on long range planning
in which (i) ultimate goals and intermediate objectives must be explicitly stated
and (ii) the costs and benefits of major alternative courses to achieve these goals
and objectives are to explicitly evaluated
2. It assumes that all programs are to be evaluated annually, so that poor ones may
be weeded out and new ones added
3. It can be adapted to any level
Limitations
1. It is quite difficult to formulate a meaningful, explicit statement of a
government‘s goals and objectives that can be agreed by all the concerned
2. Official change matters on its effectiveness
3. Need highly qualified personnel
4. Objective measurement is difficult
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1.3.4 Zero-Base-Budgeting (ZBB)
ZBB is one method of continually evaluating programs and services. The primary
idea of ZBB is that each program must justify its existence every year. No program
is assumed to be continuing from one year to the next. In this approach, the starting
point for the budget each year is zero. First the program itself must be justified,
then different ways of carrying out the program are examined and the best is
chosen.
The basic tenet of zero-based budgeting (ZBB) is that program activities and
services must be justified annually during the budget development process. The
budget is prepared by dividing all of a government's operations into decision units
at relatively low levels of the organization.
ADVANTAGES
It requires annual revision of all programs, activities and expenditures. This helps
to :-
1. Save money by identifying outdated programs and unnecessary high levels of
services
2. Concentrate the attention of officials on the costs and benefits of services 3.
Cause a search for new ways of planning and evaluation 4. provide better
justification for the budget 5. Improve the decisions of executives and legislative
bodies
LIMITATIONS
1. It requires a great deal of paper work, staff time and effort to identify and rank
decision units and packages
2. It is difficult to obtain the data to compute costs of alternative methods of
achieving objectives and of alternative levels of services

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1.3.5 TRADITIONAL APPROACH TO BUDGETING
For the reasons stated above, the modern approaches have not been adopted as
widely as might be expected. The traditional approach, called object-of-
expenditure (OOE) is still the most widely used. The objective of the OOE budget
has an expenditure control orientation. It is to simply list expected expenditures,
and then say how much is required for each one. This approach involves three
facets:

1. First, subordinate agencies submit budget requests to the chief executive in

terms of the type of expenditures to be made. These requests include the number
of people to be hired in each specified position and salary level and the specific
goods or services to be purchased during the upcoming period.

2. Next, the chief executive compiles and modifies the agency budget requests
and submits an overall request for the organization to the legislature in the same
object – of - expenditure terms

3. Finally, the legislative body usually makes line - item appropriations, possibly
after revising the requests, along object - of – expenditure lines.

Advantages
1. It is simple for preparation and understanding
2. It allows a great deal of control over expenditure, and
3. It fits with practical realities.
Limitations
1. It is overly control centered, to the detriment of the planning and evaluation
process

2. It provides only list of proposed personnel to be hired or goods to be purchased

for decision makers. It is only decision makers that are familiar with the
departments function and activities do understand the justification

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3. It is long range planning, program justification, and outputs achieved are not
necessarily formally considered. In other words, it doesn‘t encourage asking of
the questions, “Why are we really spending this money?” or, “What are we
getting for the money we are spending?” or, “Could this objective be better met
by another means?”

1.4 BUDGETS AND OUTTURN REPORTING (IPSAS 24)

Outturn reports are used to report to the Department any variations between the
reported cargo and the cargo that was actually unloaded from the ship or
aircraft including surplus or short landed cargo.
Out turn Reports means a detailed report prepared by a terminal to
record discrepancies in the form of over, short and damaged cargo as manifested,
and cargo checked at a time and place of handling of ship. Outturn Reports is a
collective term used to refer to a number of specific reports designed to track and
control the movement of cargo throughout the supply chain.
Examples of Outturn Reports in a sentence

It is an abbreviated message that is based on Advance Cargo Notices received by

SARS, but stripped of all consignor/consignee data, which is sent to licensees of
Container Depots and licensees of De- grouping Depots to enable those parties to
timeously complete the Outturn Reports that they must submit to SARS in respect
of the cargo received at their premises. The focus now moves on to the
completion of the Annual Accounts and the Final Out-turn Reports, which will be
the main priority until June. The range of projections are based on increases in
fares of between 0% and 6.25%.20 Labor market statistics: Scotland, Office for
National Statistics, July 2011.21 Efficient Government Efficiency Outturn Reports,
Scottish Government, November 2009 and October 2010.22 Improving public
sector efficiency, Audit Scotland, February 2010
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 1.5 PERFORMANCE BUDGETING AND REPORTING
Budget Performance Report is the comparison of planned budget and actual
performance. It allows comparing the actual account transactions in a specific
period with the budget figures of the same periods.

A performance report is a report on the performance of something. They are

routinely produced by government bodies which, being financed by public money,
are required to show that the money was spent efficiently and usefully.

A performance report should compare results in relation to prior years' results in

order to show whether performance is stable, improving or declining. Purpose: To
better contextualize the performance information in relation to historical
performance and targets or goals that might have been set.

2 . Accounting for other Not-Profit Entities

Usually, every business undertakes economic activities with a motive to earn a
profit. But, there are some organizations which work with a motive to provide
service to its members as well as to the general public. The trustees of these
organizations are fully accountable to the members and the public. Hence,
Accounting for Non-Profit Organizations become necessary. Examples of such
organisations are charitable institutions, religious organisations, clubs,
educational institutions, trade unions, etc

Not-for-Profit Organisations are organisations which are set up for the welfare of
the society or for the promotion of art and culture in the society. These are
usually set up as a charitable institution with the service motive. The trustees
manage these organisations. The members of the organisation elect the trustees.

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The Not-for-Profit Organisations raise funds from its members as well as from the
general public for meeting their objectives.

The main motive of these organisations is to provide service. However, they may
earn profits in the due course. Generally, these organisations do not manufacture,
purchase or sell goods or provide services. Thus, they do not need to prepare
Trading and Profit and Loss A/c. They credit the funds received to the Capital Fund
or General Fund A/c

As we know that the not-for-profit organisations do not trade in goods or provide

services with a profit motive. But, they also require to keep proper records of
incomes, expenses, assets, and liabilities. Their major source of income is
donations, subscriptions, grants, etc. Therefore, most of their transactions are in
cash or through the bank account.

They need to keep proper books firstly because they are accountable to the
members and the contributors and secondly because the law requires them to
maintain proper books so that the government can keep proper control over the
grants. Also, proper accounting reduces the risk of fraud and embezzlement. In
addition to the ledgers and cash book, they are also required to maintain a stock
register. Also, in a Stock register, a complete record of all fixed assets and
consumables is maintained.

In accounting for non-profit organizations, instead of maintaining a Capital A/c,

these organizations maintain Capital Fund or General Fund A/c. They credit this
account with the surplus, life membership fees, donations, legacies, etc.

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2.1 Characterstics of Non –governmental NFP organizations
Non Profit making organizations are formed for social welfare or charity. They
usually promote science, art, charity, commerce or religion for social
development and not for personal profit.

There are a few distinct features which make them different from regular
organizations.

The Motive for Service – Non-profit organisation meaning they are set up mainly
to provide service to a specific group of people or public, without discriminating
for their caste, creed and gender. They extend help free of cost or at a nominal
price as profit making is not their motive. For example, they provide services like
health care, education, food, recreation, shelter, clothing, sports facilities, etc.

Management – Usually, a managing committee or executive committee looks

after these organizations, and its members elect them. Members – Since these
organizations are formed as charitable societies or trusts, the people who give
subscriptions to these are its members.

Income Sources – The primary source of these trusts are donations,

subscriptions, government grants, incomes from investments, legacies and
several others.

Surplus – If a financial year surplus is generated, that will be credited to the

capital fund.

Reputation – These organizations generally earn a reputation for the contribution

it makes through the services and not for any of its member’s personal goodwill.

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Accounting Information – Generally, any present or potential contributors and its
members can have access to its accounting information.

For instance, Amnesty International is an example of a non-profit organization

2.2 charities and societies law in Ethiopia

Charity is an institution which is established exclusively for charitable purposes
and gives benefit to the public. Charity or civil society has emerged as an
important catalyst of changes in the development and democratic processes at
both the national and international level.

The charity and society proclamation was adopted in 2009 by the House of Peoples
Representative of the FDRE. The EPRDF Government has introduced a Charities
and Societies Proclamation No.621/2009 on January 6, 2009 and the purpose of
this law is to regulate all domestic and international civil society organizations
carrying out activities in the country and it is considered as a primary tool
enhancing the transparency and accountability of NGOs. This proclamation has
112 articles and this study focused on Article 6 and 88. Article 6 deals with charity
and society accounts and reports. Charities and societies are expected to submit
financial reports to the Agency annually and article 88 deals with ―Administrative
and operational Costs of Charities and Societies‖. This articles states ―Any charity
or society shall allocate not less than 70 percent of the expenses in the budget
year for the implementation of its purposes and an amount not exceeding 30
percent for its administrative activities (FDRE,2009). This law prohibits the
Ethiopian resident and foreign charities from engaging in human right issues and
requiring judicial review of administrative decisions. It also put fund raising
restriction on Ethiopian charities and societies. Additionally, the laws provide the

17
70/30 rule of budget allocation and the duty to keep accounting record and strict
reporting requirement to the charity and society agency. This research therefore
tries to assess the challenge and prospects this law on the civil society sector
through qualitative research methods by interview of three charities and societies
officials along with assessment of the charities and societies law and other
literatures. After conducting serious analysis, the writer has, eventually, reached to
the following findings. The prohibition of the Ethiopian resident and foreign
charities from engaging in human rights issues and the fund raising restriction on
the Ethiopian charities and societies creates a challenge for the promotion and
protection of human rights. Additionally, the prohibition of requiring judicial
review of administrative decisions of the Ethiopian resident and foreign charities
creates a challenge for them to reverse the unjust and arbitrary decisions of
administrative bodies. Moreover, the 70/30 rule of budget allocation is important
for the beneficiaries to receive more benefits from the projects of the charities and
societies. Finally, the duty of accounting records and strict reporting requirement is
important to avoid or reduce corruption and to create accountability and
transparency on the charities and societies sector. Based on these finding the
researcher recommend the necessity of amendment of the fund raising restriction,
the prohibition of Ethiopian resident and foreign charities from the involvement of
human rights issues, the inclusion of transport cost used to implement and
supervise the project of the organizations, costs for wages of employees, fuel costs
and costs that is incurred to attend the agency’s meeting in the operational cost or
increase the administrative cost to 40% and making the ratio of operational and
administrative cost 60%/ 40 and the denial of appeal rights.

In February 2009 the Ethiopian parliament passed into law the Charities and
Societies Proclamation (No.621/2009) (CSP or “the law”). The law places severe

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administrative restrictions on the work of human rights non-governmental
organisations (NGOs) in Ethiopia. It requires organisations to register in one of
three categories: Ethiopian Charities or Societies, Ethiopian Resident Charities or
Societies, or Foreign Charities. Only Ethiopian Charities and Societies may work on
human rights issues in Ethiopia. International NGOs are prohibited from working
on them. Infringements of the law can lead to heavy fines or terms of
imprisonment for NGO staff. Human rights work restricted in the law comprises
“the advancement of human and democratic rights; the promotion of equality of
nations, nationalities … peoples … gender and religion; the promotion of the
rights of the disabled and children’s rights; the promotion of conflict resolution or
reconciliation; the promotion of the efficiency of the justice and law enforcement
services.” The CSP explicitly prohibits ‘Ethiopian Charities or Societies’ - who may
work on human rights – from receiving more than ten percent of their funding
from foreign sources. Organisations are not permitted to spend more than 30 per
cent of their budget on ‘administrative costs’. The lack of definition of
‘administrative costs’ means the provision could be interpreted to include, inter
alia, the costs of investigating and documenting human rights abuses, the
provision of free legal aid, advocacy, and other essential activities in the
promotion and protection of rights and freedoms. In some human rights
organisations all budgeted expenses could be interpreted as ‘administrative
costs.’ The CSP established a Charities and Societies Agency with broad
discretionary powers over non-governmental organisations, including
government surveillance and direct involvement in the running of organisations,
and the power to suspend licences and confiscate and transfer the assets of any
organisation. Amnesty International is particularly concerned by the power of the

19
Agency to demand any document in an organisation’s possession. This could
include the testimonies of victims of violations, contravening the essential
principle of confidentiality and potentially further endangering victims of human
rights violations. The Charities and Societies Agency has issued eight
implementing directives on the law, which make the operating environment for
NGOs even more difficult. For example, Directive 7-2003 (2011), places a
bewildering number of complex and time and resource-consuming requirements
on the income generating activities of NGOs. These include the need for a
separate license for a profit making entity, start-up capital funded by the non-
profit NGO, and a full-time accountant and manager separate from those of the
non-profit NGO. Noncompliance or engaging in ‘unethical income generating
activities’ can result in the revocation of the license and criminal charges.

2.3 Financial reporting and accounting for NGOs

The primary objective of financial reporting by NGOs is to provide information
about the financial position, performance, and cash flows of the organization that
is useful, and indeed, necessary, for a wide range of users to engage in informed
decision making. Financial reporting prepared for this purpose meets the
common needs of most users. Financial reporting also shows the results of the
stewardship of management for the resources entrusted to it. Those users who
wish to assess the stewardship or accountability of management do so in order
that they may make sound decisions. The financial reporting is the means by
which the information gathered and presented in financial accounting is regularly
communicated to those who use it NGOs are very old development institution
that is contributing towards the development of third world economy. Now-
a-days the function of NGOs is not limited to within the same geographical
20
limit of any country. Due to globalization some NGOs operate in the other
countries. But their financial reporting inevitably is somewhat specialized in
nature. In Bangladesh different NGOs using different method of accounting
and reporting system due to lack of accounting and financial reporting
standards, hence the comparison among the NGOs isn’t possible. As there
is no IAS/IFRS it is very difficult to follow a common standard in generation
and presentation of accounting and financial information. This paper tries to
demonstrate financial reporting and accounting system of a BRAC’s micro
finance program and provide a guideline for constituting suitable financial
reporting and accounting systems for NGOs. The article elaborates on
basis of preparation of financial statements, some contradictory issues of
NGOs in relation to commercial enterprise, reporting procedure and then
followed by accounting systems of area office, regional office and head
office of that project. The final part of the article discuses issues relating to
financial report and financial transparency of the project.

The Charities and Societies Regulation outlines under Articles 20 and 22

mandatory requirements for financial Reports. As per the regulation, the financial
report shall be prepared in accordance with accepted standards. It shall include: A
statement of the income and expenditure of the organization in the financial year;
explanation of the source of the income, especially regarding foreign funds and
the rate of administrative and operational costs; A balance sheet showing assets,
liabilities and capital of the organization at the end of the reporting year and
Explanation of the accounting policies/methods used to prepare the accounts
(Charities and Societies Law, 2011)

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High-quality financial reporting help NGOs to offer adequate accountability for
the resources entrusted to their stewards. Good financial reporting quality
address user information needs, reduce fraud opportunities, improve use of
donor funds, create uniformity of financial reports, increase donor confidence and
funding, and consequently improve service delivery to the intended beneficiaries
(Kisaku, 2017). Therefore, foreign charity in Ethiopia required to prepare high
quality financial reports to offer adequate accountability for the resources
entrusted to their stewards to address information needs, reduce fraud
opportunities, improve use of donor funds, create uniformity of financial reports,
increase donor confidence and funding, and consequently improve service
delivery to the intended beneficiaries. The purpose of this study is to assess the
Ethiopian foreign charities financial reports quality

2.3.1. Accounting System

Collins and Collins (1978), contend that an accounting system is a way of keeping
a written record of transactions. Receipts are given for all money that is received
by an organization and receipts are asked for every time money is spent.
According to Larson & Pyle (1988) an accounting system consists of business
papers, records, reports and procedures that are used by an organization in
recording transactions and reporting their effects. Welsch and Short (1987) said
that an accounting system, regardless of the size of the organization is designed
to collect, process and report periodic financial information about the entity.
According to Keating & Frumkin (2003), in most NGOs funds from donors are
poorly managed and their accounting systems are in poor order. Many NGOs do
not have qualified accountants and have problems preparing accurate and timely

22
financial reports, which is one of the major donor requirements. According to
Doornbos (2003) one area that typically comes up for special mention in donor-
recipient relationships is that of financial accountability and it stands out as the
heart of good governance concerns. Schnelder (1989) stresses that the heart of
fiscal management in any organization is a good accounting system, that is
appropriate to that organization. In order to achieve consistent financial
accountability, it is necessary to establish standards and a system for accounting
practices. Ebrahim, (2003) notes that NGOs respond to issues of accountability
with both tools and processes. Tools are created by stakeholders that have
considerable leverage over an NGO like a donor or a government regulator.
Familiar tools are annual reports, financial accounts, performance assessments,
quarterly reports, independent evaluations and audits. Keating and Frumkin
(2003), state that in order to determine the effectiveness of a financial reporting
system, one must understand its objectives. Policy makers design systems that
meet the basic criteria of quality information, which are reliability and relevance.
16 Brown and Moore (2001) state that there is no single accountability system
that is right for all organizations. The need for a transparent and standardized
reporting and accounting system for large scale service delivery, conflicts with the
requirements for the service to those in need. According to Edwards and Hulme
(1996), effective performance of an NGO does not only depend on standardized
delivery systems but also depends on organizational independence, closeness to
the poor, representative structures and a willingness to spend a lot of time in
conscious-raising and dialogue.

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 CONCLUSION
 .. Budgeting is the process of allocating finite resources to the prioritized needs of an
organization the budgeting system provides management with a means of
controlling its activities and of monitoring actual performance and comparing it to
budget goals. There are five classifications of budgets and two types within each
classification. 1 – Incremental Budgeting. ..2 – Zero-based Budgeting (ZBB) 3 –
Activity-based Budgeting. 4 – Participative Budgeting–5’ Negotiated Budgeting
Value Proposition Budgeting

 Ethiopia’s Charities and Societies Agency(ChSA) has shut down some NGOs due to
noncompliance with civil society and charity law. The closing of NGOs will affect the
contribution of NGOs towards the vision of Ethiopia. High quality financial reporting by
NGOs is essential to securing sustained support from donors and from the wider public and
to continue in the business. The primary objective of financial reporting by NGOs is to
provide information about the financial position, performance, and cash flows of the
organization that is useful, and indeed, necessary, for a wide range of users to engage in
informed decision making. Financial reporting prepared for this purpose meets the common
needs of most users. According to Edwards and Hulme (1996), effective performance of an
NGO does not only depend on standardized delivery systems but also depends on
organizational independence, closeness to the poor, representative structures and a
willingness to spend a lot of time in conscious-raising and dialogue.

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 REFERNCES
Nigussie, Tefera, An overview of the charities and societies proclamation of
Ethiopia: challenges and prospects (April 20, 2017). Available at
SSRN: https://ssrn.com/abstract=4134423 or http://dx.doi.org/10.2139/ssrn.41344

http://repository.smuc.edu.et/bitstream/123456789/5040/1/JALALE%20ABERA.pdf

https://www.vedantu.com/commerce/not-for-profit-organizations

saint Mariam research about charities and societies in Ethiopia

https://www.mccc.edu/~horowitk/documents/Chap001_001.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4134423

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