nfpo financial reporting framework - … seminar - notes/nfpe... · nfpo financial reporting...

NFPO FINANCIAL REPORTING FRAMEWORK

Presented by: J.K. Mulumba of Kisaka & Company CPA

Kisaka & Company CPA

U G A N DA’ S F I N A N C I A L R E P O R T I N G S T A T U S


Three financial reporting frameworks; IFRS, IFRS for SMEs and IPSASGAAPs ?IFRS was formulated to protect investors/capital providers (principals) from scrupulous managers (agents)-FPOsIFRS for SMEs small and medium FPOsIPSAS for public entitiesNFPOs/NGOs-????

A N I N T E R N A T I O N A L OV E R V I E W O F N F P O F I N A N C I A L R E P O R T I N G


UK, Scotland and Wales-SORPsUSA-SFAS since 1973Canada-Part III of the CICA HandbookSouth Africa-IFRSAustralia-IFRS but developing special frameworkNew Zealand-IPSASAsia Pacific Philanthropic Consortium (APPC) (Bangladesh, China, India, Indonesia, Pakistan, Philippines, Thailand, Hong Kong, and SAR)-Use the Accounting Guide for NGOs

H I S T O RY O F F I N A N C I A L R E P O R T I N G


673-Fair value statements of financial position were developed in France to avoid bankruptcies1807-Evolved into the Napoleonic commercial code used in Europe as a basis for government taxation1973-The IASC was set up by the World Accounting CongressJoined by industrialized countries to form IASCNegotiated with IOSCO to form IAS/IFRS to avoid double audits for secondary stock market listingCurrent improvements to financial reporting-Deloitte, Revised framework

O B J E C T I V E S O F F I N A N C I A L R E P O R T I N G


OB2, P.A21-The objective of GPFR is; “to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve, buying, selling, or holding equity and debt instruments and providing or selling loans and other forms of credit.”

OB3-The decisions depend on the returns expected from an investment, e.g. dividends, principal and interest payments, or market price increases (P&L)



OB3-Assessing an entity’s prospects for future cash flows, the existing and potential investors need information about the resources of the entity (assets), claims against the entity (liabilities), and how efficiently and effectively the entity’s management and governing board have discharged their responsibilities (….???)

The standards are therefore about valuation, cash flow prospects, rather than stewardship and accountability.



OB8-However, focusing on common information needs does not prevent the reporting entity from including additional information that is most useful to a particular set of primary users.

OB11-…The concepts are the goal towards which the Board and the preparers of financial reports strive. The goal of FPOs is profit while the goal of NFPOs is social problem solving. One size cannot fit all!



IAS1. Para.9, P.543-…The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions???? Economic decisions have an element of rationality, optimality, short term based, cost/benefit analysis, and value maximization, all of which are self centered rather than social oriented (stewardship)



Para.5, P.A541- This standard uses terminology that is suitable for profit oriented entities including public sector businesses. If NFP entities apply this standard, they may need to amend the descriptions used for particular line items in the financial statements and for the financial statements themselves.

Para6-Similarly, entities without equity may need to adapt the financial statements presentation of members or unit holders’ interests.

The FP frameworks are based on the agency theory that is subject to mistrust, adverse selection and the moral hazard

F I N A N C I A L R E P O R T I N G F R A M E W O R K


What is a framework?- Purpose/Goal basedTypes of frameworks

Conceptual framework

Is a set of concepts that have been placed within a logical and consequential design. It is less formal and represents studies where theory has not been well developed, is inapplicable or insufficient. It is based on specific concepts and prepositions derived from empirical observations and intuition.

P U R P O S E O F C O N C E P T UA L F R A M E W O R K


To explain observationsTo encourage theory development useful in the studyTo provide a context for interpreting study findingsTo clarify on concepts and propose relationships

T H E O R E T I C A L F R A M E WO R K


It is a point of focus that provides a basis for approaching the unknown in a specific areaThey explain a relationship between variablesThey are purposely formulated and not discovered, they are therefore tested but not proven

Purpose of a theory

To identify the starting point of a research problem and to establish the vision to which the problem is directedIt defines and determines the direction and goal of a research problem

T H E I A S B C O N C E P T UA L F R A M E W O R K


Introduction with purpose and status, scope, users and the information needsThe objective of financial statements Underlying assumptions; accrual and cash basisQualitative aspects of financial statementsElements of financial statementsRecognition of elements in the financial statementsMeasurement of elements of financial statementsConcepts of capital and capital maintenance

M Y P R O P O S E D T H E O R E T I C A L F R A M E W O R K


Accountability theory Agency theoryStewardship theoryInstitutional theoriesResource dependency theory (Mimetic, normative and coercive isomorphism & Fund Accounting)Stakeholder theoryCommunication theory

C O N C L U S I O N S


IFRS and IFRS for SMEs are not appropriate for NFPO reporting Change from financial statements to financial report Transform to Accountability Report Not to sit and wait for developed work let us be part ICPAU should be transformational and solving social problem and contributing to social, economic and professional development

WAY F O R WA R D


Define the problemDefine the scopeConsult stakeholders Review related literature and benchmarkDevelop possible solutions after considering implicationsPresent a conceptual/theoretical framework, standards and report guidelines t stakeholders

nfpo financial reporting framework - … seminar - notes/nfpe... · nfpo financial reporting...

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