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| 145 Accounting Guide for Non-Profits Accounting Guide for Non-Profits from th

| 145 Accounting Guide for Non-Profits Accounting Guide for Non-Profits from the Financial Accounting Standards for Non-Profit Organizations Project Published by the Asia Pacific Philanthropy Consortium Rm. 208 CSPPA Bldg. Ateneo De Manila University Loyola Heights, 1108 Quezon City, Philippines Tel. (63-2) 426 6001 ext 4645 Fax. (63-2) 426 1427 Web. www.asianphilanthropy.org with funding support from the APPC encourages the use of this Accounting Guide for Non-Profits, even without permission, but with due acknowledgement. We encourage sharing this with others to copy and to use. Your comments and suggestions on how to further improve this manual will be most appreciated. Please send them to appcpost@yahoo.com Printed in the Philippines 2006 TABLE OF CONTENTS PART I. Fundamental Concepts 1. Introduction and Rationale..............................................................................................................2 2. Framework.........................................................................................................................................8 Scope.........................................................................................................................................8 Users and their Information Needs.......................................................................................8 Objectives of Financial Reporting........................................................................................9 Basis of Accounting................................................................................................................9 Qualitative Characteristics of Financial Statements........................................................11 Accounting Elements............................................................................................................12 Recognition and Measurements..........................................................................................13 3. The Accounting Equation.............................................................................................................14 4. The Accounting Cycle...................................................................................................................16 5. Accrual Basis – Guidelines...........................................................................................................18 PART II. Financial Reporting and Chart of Accounts 6. Financial Reports and Disclosures..............................................................................................24 7. Chart of Accounts..........................................................................................................................46 PART III. Specific Accounts 8. Cash and Cash Equivalents..........................................................................................................60 Cash on hand and in banks..................................................................................................60 Petty cash fund/Revolving fund..........................................................................................63 Foreign currency accounts...................................................................................................63 9. Receivables.....................................................................................................................................66 Contributions receivable......................................................................................................66 Accounts receivable..............................................................................................................67 Advances and Other receivables.........................................................................................67 iii 148iv |Accounting Guide for NonProfits 10. Inventories.......................................................................................................................................71 11. Investments......................................................................................................................................73 12. Property & equipment and depreciation.....................................................................................75 13. Liabilities.........................................................................................................................................80 Deferred grant/support.........................................................................................................80 Accounts payable..................................................................................................................80 Other liabilities......................................................................................................................81 Long-term liabilities.............................................................................................................81 14. Agency Transactions/Funds Held in Trust..................................................................................83 15. Provisions and Contingencies 84 16. Contributions and Income.............................................................................................................85 Grant and Donations.............................................................................................................85 Unrestricted............................................................................................................................85 Restricted (two options).......................................................................................................86 Contributions in Kind...........................................................................................................87 Membership fees...................................................................................................................88 17. Expenses..........................................................................................................................................93 18. Gains and Losses............................................................................................................................98 PART IV. Other Relevant Aspects of NPO Accounting 19. Consolidated Financial Statements...........................................................................................100 20. Fund Accounting..........................................................................................................................105 21. Other Applicable Standards........................................................................................................118 APPENDICES I. Co-Authors/Contributors............................................................................................................120 II. Project Steering Committee Members and Country Consultation Convenors............................................................................................121 III. First Regional Workshop Participants.......................................................................................124 January 2005 IV. Training Design Workshop Participants..................................................................................134 February 2006 V. APPC Board of Directors 141 | 149 FOREWORD When APPC first held its conference on “Governance, Organizational Effectiveness and the Nonprofit Sector” in Manila on September 2003, we began an effort to set minimum financial accounting standards to guide Nonprofit organizations in the region. With this Accounting Guide, we mark the end of a process of consultation, dialogue and the exchange of ideas between and among the different societies who participated in it. We are proud to share the results of this process and the many learnings that it has brought to fore. We started planning the 2003 APPC Conference with a decidedly philanthropic approach, and one that we had framed as a question: How do we improve nonprofit governance to ultimately bring in more philanthropic resources for nonprofit work in the region? How could NPOs be encouraged to look at strategic options in working together to respond to concerns of legitimacy, effectiveness, transparency and accountability within the sector? In the end, our goal was to build a more responsible NPO sector in the various societies, and in the region as a whole. The post-conference project “Developing Financial Accounting Standards for NPOs in Asia” has shown us a concrete way forward in responding to these challenges. The project demonstrated how key actors in the seven participating societies (Bangladesh, China, India, Indonesia, Pakistan, the Philippines and Thailand. Hong Kong, SAR, China joined the first workshop-consultation, and contributed its knowledge of NPO accounting systems) worked together to sift through the accounting issues and practices in their respective societal contexts to determine how NPOs can best achieve the goals of accountability and transparency. At the end of the process, they were able to come up with this Accounting Guide, which participants recommended that APPC forward to the International Accounting Standards Board (IASB), with a request to begin a process of setting international standards for the NPO sector, a sector that has as yet not been seen as a sector by itself. It is thus with great pride, as well as great hope, that we transmit this Accounting Guide, with the corresponding Issues Paper, which lays out what the accounting issues are for each of the participating societies to the International Accounting Standards Board. We hope that the IASB will heed our call to begin this process, which we believe will determine, and thereafter v 150vi |Accounting Guide for NonProfits enforce, global standards that will promote transparency and accountability for a sector whose influence and visibility are growing all over the world. Interestingly, back in 2003, APPC had initially refrained from recommending a specific model for any aspect of transparency and accountability of NPOs. However, as a result of the process we have described above, APPC now recommends this Accounting Guide as a model, at least for the major aspect of internal nonprofit governance, or the financial accounting standards. This development could only have been made possible with the successful consultative processes undertaken by our partners in the different participating societies; the leadership of our dynamic Project Steering Committee; the assistance of our partner, the Association of Foundations in the Philippines, our fiscal agent for this project; and the trust and confidence of our invaluable donor partner, the Ford Foundation. In June 2004, we began this project with consultation sessions in each of the different participating societies, which involved studying a model developed by the Indian Institute of Chartered Accountants, which had been brought to our attention by Sunil Mor of India’s Azim Premji Foundation. These national level consultations, which involved various sectors such as government regulatory bodies, chartered accountancy bodies, nonprofit sector leaders, their finance officers as well as members of the auditing profession, brought to the fore the contexts in which nonprofit organizations in these societies operated and subsequently helped us develop recommendations which were then brought to a regional consultative conference. The project took a life of its own immediately after this first regional consultative conference, where the 40-member participant body reached some understanding on the actual effort or programs being undertaken per society and the direction each one was headed. The body also agreed to produce an Issues Paper that identified the critical concerns vis-a-vis nonprofit accounting in the participating societies, along with the body’s recommendations on their disposition. A second round of national-level consultations and consensus building followed per society, focusing on what minimum standards for NPO accounting could be derived from the what was discussed in the first regional consultation. The development of the Issues Paper was carefully managed. It was initially developed by a consultant, Eribert Padilla (Accountants for NGO Concerns, Philippines) following agreements made in the regional conference. Where there were major points of contention among different societies, it was agreed that the majority position would be taken, so as to be able to come up with minimum consensus positions. The draft of the Issues Paper was then circulated to two Steering Committee members, | 151vii considered the “experts” in the group: Sanjay Agarwal of India and Lu Jianqiao of China, for their comments. These comments were integrated before the Issues Paper was released to the 40-member body who then subjected the Paper to careful validation in country consultation process. The feedback provided to the consultant finalized the Issues Paper. The development of this Accounting Guide for NPOs was deemed to be the next critical step in the project, and APPC worked with a pool of consultants to ensure that it would be useful as well as relevant to NPOs in the region. This Guide was used as the primary training reference for the last major stage of the project, the training of trainers in the seven participating societies, in a Training Design Workshop held in Bangkok, Thailand in February 2006. The training design was crafted by the team of Sanjay Agarwal of AccountAid, India, using the Issues Paper and the Accounting Guide developed by the project. The trainers’ goal would be to disseminate the Guide and its principles for wider application among nonprofit organizations in each society. In the end, we see that what this project has created is a committed network of collaborators among different organizations on accounting standards. It is also a resounding confirmation of the NPO sector’s desire to strengthen ongoing efforts towards financial accountability and continued legitimacy. Our sincere gratitude goes to many individuals and their organizations who have given inspiration and leadership in this project: Suzanne Siskel and Sushma Rahman of Ford Foundation, who encouraged us to develop this initiative; the Project Steering Committee members –Iftekhar Zaman and Amita Dey of Bangladesh Freedom Foundation, Lu Jianqiao of the Ministry of Finance in Beijing, Sanjay Agarwal of Sanjay Aditya and Associates, Rustam Ibrahim of LP3ES, Syed Mohammad Ahmad of Pakistan Centre for Philanthropy, Gil Salazar of the Philippines Business for Social Progress, and Gawin Chutima of the Thai Fund Foundation – who guided this project to completion with a tremendous sense of responsibility. We especially thank Sanjay for sharing with us the depth of his experience in promoting accounting standards and for taking this project in perspective and moving it forward with the Committee! We also express our uploads/Finance/ accounting-guide.pdf