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ACCOUNTING AND REPORTING PRACTICE OF NGO’S IN THE CASE OF AGOHELD (A CASE
STUDY AT ADDIS ABABA)
A RESEARCH PAPER SUBMITTED TO
ACCOUNTING DEPARTMENT IN A PARTIAL FULFILLMENT OF BA DEGREE IN ACCOUNTING
PREPARED BY: BIRHAN ADMAS
ADVISOR: KENENISSA LEMI (MBA)
DEPARTMENT OF ACCOUNTING
MAY, 2012
Acknowledgement
Above all, I
would like to thank the almighty God for helping me in all my duties. Had it
not been for his assistance, it would have been impossible to over come the
challenges. My special thanks go to my advisor, Ato kenenissa Lemmi for his
valuable advice and comments throughout the research work.
I am
also very thankful to my brother and siste H/Giorgis Yetaych and Nitsuh Birara
and my friend Getanch Yibelu my heartfelt thanks also to Elsabet Mengesha to
typed the proposal.
Abstract
Abstract
This study was aimed to asses accounting and
reporting practice of NGO’s in the case of AGOHELD. The main objective of the
study is to assess accounting and eporting practice of the organization. To achieve this
objective, both primary and secondary data sources are used. The researcher
used descriptive sampling technique in order to select staff of the
organization that are directly responsible for the practice of accounting and
reporting of the organization. The
researcher used descriptive sampling technique in order to select Primary data are obtained by using observation
by destructing self administered questionnaires by face to face interviewing
where as secondary data will be obtained from different reference books,
research papers, company record, journals, magazines and different websites.
The collected data were analyzed, processed and interpreted by using tales and
percentages.
Finally as a conclusion A GOHELD employees
or members have a clear understanding of accounting practice an financial
reports covering all funds and financial transactions and the recommendation is to avoid dependency AGOHELD
should concentrate more on internal activities and fund raising options.
Table of content
Contents page
List of table
Tables page
Acronomy
AGOHELD: Abebech Gobena Yehitsanat
Kebekabena Limat Dirigit
NGO’s: Non Governmental Organizations
CHAPTER ONE
Introduction
1.1. Background of the study
Accounting is
the process of analyzing, recording, summarizing, evaluating and interpreting
an organizations financial actitives and stated, and communicating the result
to the users.
Organizations
are generally classified in to for- profit (commercial or business) organizations
and non-profit (Not-for- profit) organizations. Non profit organizations are
inturn classifieds into governmental and non-governmental organizations based
on their objectives. Government organizations include federal, state, local
government agencies offices. Non-governmental organizations include religious
organizations, voluntary health and welfare organizations, charitable
organizations etc.
A fundamental
purpose of the financial statements of non-governmental organizations should be
to discloses how the entity’s refources have been acquired and used to
accomplish the objectives of the organization to the extent possible,
thefinacial statement of the organization should relect the total resources
available to carry out the various program services to which it is committed
and the use made of these resources.
The purpose of
this study is to investigate the accounting and reporting practice of NGO’s in
the case of AGOHELD.thus, this study tries to evaluate the accounting record
keeping and reporting practice and demon strates on the strength and weakness
of Abebech Gobena Yehitsanat Kebekabena Limat Dirigtit (A GOHELD) accounting
activity against the aid principles of FASB.
1.2. Background of the organization
Abebech Gobena
yehisanat Kebekabena Limat Dirgit (AGOHELD), is a registed and indigenous non
governmental and non-political humanitarian organization funded by aldy called
AbebechGobena during a severe draught caused famine in 1980 in the northern
part of Ethiopia .
Abebech Gobena,
founder and General manger of AGOHELD, started her humanitarian after she found
a baby sucking her dead mother’s is breast. She took two babises from the
famine affected areas to A.A and gradually increased the number to 21, but her
humanitarian activities put her in conflict with her family. Finally, Ababech
abandoned her decent marriage and moved to a small poultery house, where she
continued her humanitarian activities for six challenging years. From the very
beginning, Abecbech stressed self- reliance to finance her projects to the
extent of selling her jewelry and other possessions and also run small business
to raise finance.
Besides
institutional care and support of orphans, the organizations has started
different developmental activities in rural and urban areas, thus in the
process of expansion, the name of the organization has been changed to
incorporate it’s developmental aspect and now the official name of the
organization is AGOHELD which means Ababech Gobena children’s care development
organization. Over the past two and half decades with restless efforts of the
founder, dedicated staff and Genine support of humanitarian organization and
individuals, the organization has made a tremendous progress. Abebech’s
self-sacrificing venture attracted the attention and support of individuals and
several humanitarian organizations and her individual effort has been
transferred into a big institution
providing improved and better services to 160 resident children as well as to
nearly 12,000 non-resident children in the operational areas. In addition to
child care program, AGOHELD ha legally involved in rural and urban integrated
development activities and supporting directly and indirectly about 600,000
marginalized segments of the communities both from urban and rural settings.
Vision
To make children
productive and responsible citizen by satisfying their needs and protect their
rights, so that they can become self-supportive and contributed their share in
the society.
-
Bringing up needy children by providing them with basic
needs
-
Reunifring children whose parents/relatives are
identifies
-
Make the group up children of AGOHELD, destitute women and
youth to be supportive by providing them various skills training.
Objective
-
Providing full boarding service to Orphans
-
Contribute its part in the fight against HIV/AIDS.
-
Supporting community development endeavors.
-
Empowering women in the community and encouraging
self-reliance.
The organization
has established health center, clinic, training institution, schools,
kindergartens, Hall, Ware house,, Dormitories and offices in the Head quarter
found in Addis Abab, there are also offices and other facilities in the project
site of facilitate the work of the organization
1.3. Statement of the problem
It is expected
that AGOHELD have a formal way of record keeping and fair presentation of
financial affairs based on the accounting theory practices set for non-profit organizations. Most NGO’s face some problems
in implementing and applying the theories and practices of appropriate fund
accounting systems, some of them could be:-
-
If promised donation is not obtained to finalize the
project;
-
The variation between budgeted and actual and their consequence
in the accounting and reporting practice;
-
Inconsistency in implementing and applying the
principles set by FASB in relation to NGO’s Accounting.
-
Not preparing financial reports covering all funds and
financial transaction during the period.
As a result of
these possible problems, the study will attempts to answer the following basic
questions:-
-
What impact does the accounting and reporting practice
of AGOHELD have if the donors do not keep their promises to provide funds?
-
What will the consequence on accounting practice if
there is a variation between budgeted
and actual variance activity?
-
What impact does the accounting and reporting practice
of AGOHELD have in mobilizing funds form donors?
-
What will be the
effect on the accounting and reporting practice in A GOHELD if the financial
report covering all funds and financial transactions do not prepare during the
period?
1.4. Objectives of the study
1.4.1. General objective
The general
objective of the study is to assess the accounting and reporting practice of
AGOHELD.
1.4.2. Specific
objectives
- To evaluate
whether it has accounting manual or not and its consistency with the FASB
standard.
- To check
whether the report includes all financial statements.
- To assess the
reliability, relevance and time liness of the report.
- To check the
preparation of financial statements are according to the standard or the need
for users because the organization mainly gets its fund from donors.
1.5. Significance of the study
The research is
beneficiary to the management of AGOHELD, other local NGOS and for any other
researcher in identifying the proper usage of accounting systems in accordance
with accounting principles and standard of FASB, and the student researcher has
got practical application before joining to the practical world.
1.6. Scop and limitation of the study
1.6.1 Scope of the study
The study tried
to discuss the accounting practice of NGO’s in general. specifically it focused
the evaluation of accounting practice record keeping, reporting mechanism and
internal control system at AGOHELD.
1.6.2. Limitation of the study
There are so many
limitations to complete the findings some of them are:-
-
In sufficient information and research related
documents.
-
The constraints to undergo detail evaluation of
organizations entire records,
-
Insufficiency of more relevant reference books. In
addition, finance constraints are other expected constraints which might affect
the output of the study
1.7. Organization of the paper
The research
paper has five chapters. The first chapter consists of background of the study,
Background of the organization research problem, research question, objective,
significance, scope and limitation of the study. Chapter two discuses or deals
with all related documents about NGOS. The third chapter presents/discusses
about research design, source of data and collection techniques, target
population and sampling methods. The fourth chapter presents and methods of
data analysis and presentation and the last chapter contains summary of finding,
conclusion and recommendation of the study.
CHAPTER TWO
Litterateur review
Not for –profit
organizations are a legal and accounting entity that is operated for the
benefit of the societies a hole rather than for benefit of an individual.
(larson. P 723) Not for profit accounting specializes in recording, reporting
and planning the operations of various governmental units and other non-for
profit organizations such as church’s, characterizes, and educational
institutions. An essential element is an accounting system that will insure strict
adherence on the part of management to restrictions and other requirements
imposed by law, by other institutions or by individual donors. (Fees. Waron, p
-44)
2.1. Funds and fund accounting
A fund is a
fiscal and accounting entity with a self balancing set of accounts recording
cash and other financial resources together with all related liabilities, and
residual equities or balances and changes there in, which are segregated for
the purpose in accordance with special regulation, restrictions or limitations.
A fund in the not-for profit sense is a self –contained accounting entity with
its own asset, liability, revenue, expenditure or expenses and fund balance or
other equity account and with its own ledger. (E.S Lynn and RJ Free man,
PP.8-9)
2.2. Source of funds
2.2.1. Fund raising
Fund raising is
both an art and science. The art is developing nurturing relationship with
people; the science lies in using data research and tested fund raising model
to achieve the organization’s goals. What ever words are used to describe it,
all NPO’s are in the fund raising business. Whether we under take a capital campaign
to raise funds or to create an endowment, social corporations for contribution
to an educational foundation, fund raising is an essential element for NPO’s contributions
variability and success. (Smith, 2000, P 158)
2.2.2. Fund raising options
A. membership
solicitations
Revenue derived
from membership dues or annual assessment can help and support general
operating expenses, usually the most difficult costs to cover membership is
most of ten solicited and renewed via direct mail. (Ibid)
B. Contribution above dues
An organization
may solicit funds from its membership beyond membership dues, often to bridge
the gab between operating expense and dues income. If the organization does not
have formal membership program, annual fund drive should be conducted each
year. (Ibid)
C, Special appeal
At times, an
organization may appeal to its membership for special gifts, entered on an
urgent project or particular program that needs funds. (Ibid)
D, Acquisition of mailing
NPO use
acquisitions to acquire new members or donors. An organization usually rents
lists of donors form similar organization, then mails as solicitation letter or
return envelope along with membership bracks or premium after ailing or this
types are usually handled by outside donors and can be extremely effective in generating
new members and friends of the organization. (Ibid)
E. Special events
Special events are
varied as the organization that plans them. A common event is award programs at
which individual are honored for their outstanding contribution to the
organization. (Smith, 2000, p. 160).
2.3. Allocation and utilization of fund
2.3.1. Budgeting of fund
The general
characteristics of the budgeting process in non-profitable organizations are
similar to that in for profit one, but these are significant difference in
emphasis.
Budget is a plan
expressed in monetary terms. As the general purpose of anon profit organization
is to provide as much service as it can with available resource.
2.3.2. Budget preparation
The annual
budgetary process involves three steps; preparations, adoption and execution.
The preparation phase of the budgetary process is usually are possibility of
the chief executive and is accomplished by the correlation of financial data produced
by the accounting system and the project program requirements of the various
functions and activists. (N. Anthony and D.W. Young, P. 456-57).
2.4. Characteristics of non profit organization
Service to
society: NPOs often render services to society as a whole. The members of this
society may range from almited No of citizens in a community almost the entire
population of a city, states or nation.
No profit
maturation: NPOs do not operate in the objective of earning a profit
consequently NPOs generally are exempted from federal and state income taxes. Financing
by the citizenry Most NPOs depend on the general population for a substantial
porion of their support, because revenues from charages for their service are
not intended to cover al their operating costs. Stewardship for resources
because of a substantial portion of the resources of a non-profit organizations
is donated, the organization must account for the resources on a stewardship
basis. The stewardship requirement make fund accounting appropriate for many
NPOs. Importance of budget: the four preceding characteristics of NPO caused
there annual budget to be as important as for governmental entities. (E.J.
larson P.659)
2.5. Accounting for non –profit organizations
A non- profit
organization is a legal and accounting entity which is operated for the benefit
of society as a whole rather than for the benefit of an individual preparation
or a group of partners or share holders thus, the concept of net income is not
meaning full for a NPO instead like the internal service fund, A NPO strives
only to obtain revenue sufficient to cover its expenses. Until recent years,
the accounting standards practices which constitute GAAPs were not considered
to be entirely applicable to NPOs. (Walter B.Meiss A.N. Mosich, E.J. Larson p.
724).
2.6. Fund accounting by Non profit organizations
Separate funds
may be necessary to distinguish between assets that may be used as authorized
by the board of directors and assets whose use is restricted by donors. Funds
commonly used by some of the non profit organizations covered in this chapter
include the followings: (E.J. Larson p. 725)
Unrestricted
fund (Sometimes called unrestricted current fund, general funded)
Restricted fund (Sometiems called restricted
current fund)
Endowment fund.
Agency fund (Sometimes
called custodian fund)
Annuity fund and life income fund (Sometimes
called living trust fund).
Loan fund
Plant fund (sometimes called land, building,
and equipment fund).
- unrestricted
fund
The unrestricted
fund sub group includes those financial resources of the institution that have
not been restricted externally (by grantors, donors, etc----) for specific
purposes and are expendable for any legal and reasonable purpose agreed upon by
board who carryout the primary purposes of the institutions. Moreover
unrestricted fund is similar to the general fund of a governmental entity,
which include all the assets of NPO that are available for use as authorized by
board of directors and are not restricted for specific purposes. Thus similar
to the general fund of a governmental entity on unrestricted fund is residual in
nature (E. larson, P-725).
2.6.1. Expenses and losses for unrestricted funds
A NPO’s typically
recognize all expense in its unrestricted fund. Losses may be recognized in other
funds as well as in the unrestricted fund. Expense of NPO’s may be classified
into two groups, program service, supporting service.
2.6.2. Assets and liabilities of unrestricted fund
Most assets and
liabilities of NFP is unrestricted fund are similar to the current assets and
liabilities of business enterprises. Each investments, accounts receivable,
receivable s from other funds, inventories, and short-term prepayments are
typically assets of unrestricted fund. (E.J. Larson, p. 731)
2.6.3. Fund balance of unrestricted fund
Because, most NFP
do not have owners account; the net assets of the organization un unrestricted
funds are represented by a fund balance similar to that of most funds of government
entity. ( E.J. larson, P.732)
2.6.4. Revenues and gains of unrestricted fund
The revenue and
gains of an unrestricted fund are drived fram a No of sources. For instace,
hospital drives unrestricted (general) fund revenue from patient service,
educational program, research and other grants. Unrestricted fitts, un
restricted income form endocument funds, The principal revenue source of voluntary
health and welfare organization unrestricted fund and miscellaneous sources
such as contributed material and services is contributions. (E.J. Larson, P.
725)
2.6.5. Revenue for services
A NPO’s revenues
for services are accrued at full rates, even though part or all of the revenue
is to be waived or reduced. Suppoe, for example, that the non profit community Hospital community
Hospital
2.6.6. contribute material services and faculties
In addition to cash
contribution, NPO often receives contribution of material, services and
facilities. For example, a hospital receives free drugs or a university may
receive free operating services. The contribution material is recorded in the
inventories ledge r account at its current fair value, with a credit to a revenue
account in unrestricted fund. (E.J. Larson P.730)
2.6.7. Pledges
A pledge
(promise to give) is a commitment by a prospective donor to contribute a
specific amount of cash or property to a NPO’s on a future date or in installment.
Because pledges is in writing and signed by the pledge, it resembles in form
the promissory note used in business. However, pledges often are not enforceable
contracts. Pledge due in future accounting periods or having restrictions as to
their use generally is accounted for in a restricted fund. To illustrate the
accounting for pledges, assume that civic welfare Inc, a voluntary health and
welfare organization, received unconditional pledges totaling $xxx in a fund
raising drive. Based on past experience and current economic conditions, 15% of
the pledges are considered to be doubtful of collection. The journal entries.
(E.J. Larson P. 731)
- Restricted
fund
NPO establish
restricted fund to account for assets available for current use but expendible
only as authorized by the donors of the assets. Earning or contributions to
restrictd current funds are not recognized as revenue when received. Insaead,
revenues is recognized when fund resources are expended for their intended
purpose. (E.S larson, P 732)
Annuity and life income fund
Annuity fund
Assets may be
contributed to a NPO is stipulation that the organization pay specified fixed
amount periodically to designated recipient for specific period. An annulty
fund is established by the NPO to account for this arrangement. (E.J. larson
P.734)
Life
income fund
A life income
fund is used for stipulated payments to a named beneficiary (beneficiaries)
during the beneficiary’s life time. In a life income fund, only the income is
paid to the beneficiary. (E.J.Larson P. 734)
Plant fund
The component of
plant funds vary among NPO’s. in addition to plant asses, plant fund may
include cash and investment earn marked for an addition to plant assets and
mortgage note payable and other liabilities collected by the plant assets. (E.J
larson, P 735)
Agency Fund
An agency fund
of a NPO is used to account for asset held by a NPO as a custodian. The assets
are dispersed only as instructed by their owner. For example, a non-profit
university may act as custodian of cash of a student organization. The
university disbursed the cash as directed by the appropriate officers of the
student organization. (E.J.Larson p.733)
G. Loan fund
A loan fund may
be established by any NPO, but loan
funds must frequently is included in the accounting records of colleges and
universities. Loans receivable are carried in the loan fund at estimated
realizable value; provisions for doubtful loan sare debited directly to the
fund balance ledger account, not to an expence account. (E.J.Larsonp. 735)
2.7. Valuation of Fixed Assets
The fixed asset
accounts should be maintained on the basis of original cost, or the estimatd on
the basis of original cost or the estimated cost if the original cost is not
available, or in the case of gifts the appraised value at the time received. NGOs
frequently acquire properties by gift rather than through purchase where assets
are acqureid in this manner, on the other hand the question arises as to
whether the net apprised value should be initially recorded asanet figure or
whether the donor’s original cost and accumulative allowance for depreciation
should be set up on the NGOs unit’s books. Since a recoding of the donor’s original cost
provides more complete historical disclosure of the asset value and provides a
better basis for subsequent depreciation, however, the committee recommends
this method of recording the asset in the accounts of the NGOs units. (Larson,
p. 814)
2.8. Depreciation
2.8.1. Depreciation expense of nonprofit organization
In FASB
statement No 93, recognition of depreciation by NPOs, the FASB required reorganization
of depreciation on all long lived tangible assets of NPOs, except for
individual works of art or historical treasure having extraordinary long
economic leaves, with disclosure of the following in a not to the financial statement. (E.J.Larson
P. 730)
2.10. Financial statements NGO’’s purpose
Financial
statement of NGOs are intended to meet the needs of fanatical statement users.
The principal interest of users is assumed to focus on the ways in which resources
have been used in carryingout the organizations objectives. Financial statement
should identify the principal programs of the organization and the costs of the
programs; to the extent possible in the context of percent financial
statements, measures of program accomplishment should be presented. The
financial statements of non profit organization should help the reader evaluate
the organizations ability to carryout its fiscal objectives. Some organizations
may keep their books on a cash basis through out a fiscal period and through
adjustment at the end of the period, propare statements on accrual basis; the
audit guide allow’s this practice. (Leon Hay Earl R. Willson, 244).
2.10.1 Financial accounting standards Board
Financial
statements of Not-For-profit organizations FASB 117 “Financial statement of
Not-for –profit –organization “ amend FASB 95” statement of cash flows”,
extendit provisions to not for profit entities and requires voluntary health
and welfare organization to continue, and encourages other not-fore profit
organization to provide a statements of functional expence. While the FASB illustrater
financial statement in its appendix, it doesn’t require any specific statement
format. (Leon Hay Earl R. Willson 245)
2.10.2. Statement of financial position
A statement of
financial position must be prepared for the organization as a whole presenting
the total amount to assets, liabilities and net asses.
Either the
statement of financial position or the notes must provide information of
liquidity, financial flexibility (i.e restrictions/and interrelationship of
assets and liabilities.
Information about
liquidity can be provided by listing assets and liabilies in order of
liquidity, in order of liquidity, classifying assets and liabilities in
accordance with ARB (Accounting research Buletion) 43, or disclosure in
footnotes.
2.11. Financial reporting
Financial
statements and reports showing the current condition of budgetary accounts
should be prepared periodically to control financial operations. At the close
each fiscal year a comprehensive annual financial report covering all funds and
financial operations of the NGO’s unit should be prepared and published. The
end towards which all NGOS accounting is directed to the production of timely,
accurte, pertinent, and fairly precented financial statements and reports for
use by NGOs and other. Generally speaking, financial repoting for NGOs (1)
financial statements and schedules: and (2) statistical tables. NGOs financial
reporting may be broadly defined as the total process of communicating any
facts, events, and judgments concerning the financial condition and operation
of NGOs. Thus, conceptualized financial reports take many different forms and
may be classified in to several groups or categories. (Nwrweayk P. 17)
2.11.1. Interim Finanical reports
Interim
financial reports consist of those statements, schedules, and forecast prepared
by management during the course of a fiscal period. These reports provide the
primary financial data required by managements to control current operations,
to determine compliance with legal and budgetary limitation, and to anticipate
changes in financial resources and requirements because of events or developments
which were unknown or could not be foreseen at the time of original budget
preparation or at same earlier time in the current fiscal period. For most NGO
units, experice indicates stat interim reports on a monthly basis are necessary
for optimum results. In the case of smaller units, interim reports on a monthly
basis are necessary for ptiumum results. In the case of smaller units, interim
reports on abi-monthly or quarterly basis are quite satisfactory. (E.J.Larson
P. 848)
2.11.2. The Annual financial report
At the end of
fiscal year, every NGO unit should prperare and publish a comprehensive financial
report covering all fund and financial transactions of the unit during the
year. This report represents cumulation of all accounting process carried out
during the year and is one of the prime documents in the entire life and total
operations for any nit. It is a major responsibility of the chief finace
officer, who should make every effort to insure that the report reflects GAAPs
and financial reporting applicate to NGO entities. Although tsi report will be
formally addressed to the chief executive and governing body of the NGfO unit
to which it applies, it must also functions to meet the needs of all persons
and groups who have a legitimate interest in the units financial operatons. The
annual financial report should be camposed of and organized in to three major
chronological sections: (1) introductory section; (2) financial section and (3)
statistical section. The first of these, the introductory section, does not
need to be labeled as such in the report because of the self evident nature of
the few introductory materials which it contains. The second and third sections,
by contrst, must be segregated by separator sheets titled, respectively, “
Finacial Section” and “ statistical section.” (Larson, p.849).
CHAPTER THREE
Research design and methodology
3.1. Research design
This study was
designed in a simpler manner that enables to study the problems more easily and
clearly. The data gathered was analyzed using qualitative and quantitative data
which is simple to describe and interpret in this study descriptive approach was
used.
3.2. Source of data and data collection techniques
3.2.1. Source of data
To prepare the
research paper the source of data was collected from both primary and secondary
data. Primary data was collected from individual person where as secondary data
was collected from different reference books, company records etc.
3.2.2. Method Of data collection
For conducting
effective study, accurate and reliable data are crucial. In order to arrive at
a good conclusion both primary and secondary data was used in this study.
Primary data was
collected by means of observation, distributing self administered
questionnaires to the selected employees of the organization and by face to
face interviewing the management of the company as well as some employees.
Secondary data was
gathered from different reference books, research papers, company records,,
journas, magazines and different websites.
3.3. Target population and method of sampling
The target
population of the study was from which representative sample taken, comprises
of managers and employees of the company. The method of sampling technique was
determined based on descriptive sampling of non-probability technique. The reason
behind selecting this technique is
–
It is less time consuming to get respondents.
–
It enables the researcher to freely select any
respondent that he/she thinks best fitse to questions.
3.4. Method of data analysis and presentation
3.4.1. Method of data Analysis
To make the
research to be more coherent and attractive, the research was used both
qualitative and quantitative data. Both of the data were analyzed using
different tables, charts, graphs and ratio in order to make the research more
understandable by the readers.
3.4.2. Method of presenting the out came
The researcher was
their finding infront of audience and teachers to what extent the study
significance reliable and to what extent the problem the researches
investigated to the real problem of the organizations judged by the supervisor
and teachers.
CHAPTER FOUR
Data analysis and interpretation
The student researcher
has distributed self administered questions to the selected staff of the
organization that are directly responsible for the practice of accounting and
reporting of the organization. In order to gather data about the accounting and
reporting practice of the organization, the student researcher has mainly used
questionnaires and face-to-face interview with selected employes and based on
that the collected data are analyzed and interpreted in the following sections.
4.1. General question to practiners
The staff
members have been asked whether they have a clear understanding of accounting
practice and reporting which the first question just as a brainstorming was.
Table
1. The opinion
of the respondent regarding to the accounting practice of the organization.
Sr. No
|
Yes
|
Percent (%)
|
NO
|
Percent(%)
|
Total
respondent
|
Total
percentage (%)
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
2
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
Source: Own survey, 2012
Q.1. Do you have
a clear understanding of the accounting practice of your organization?
Q,2, Does your
financial report cover all funds and financial transactions?
As it is
indicated above, the organization have a clear understanding of the accounting
practices and their financial report cover all funds and financial transactions.
This is due to the profession qualification and short-term (on job) trainings
given
4.2. Valuation of assets and methods of accounting
Two interrelated
questions were raised concerning the valuation and methods of accounting for
fixed asset. The respondents have answered as follows.
Table
2. The opinion
of the respondents concerning the valuation of fixed asset and accounting
method
Sr.No
|
At cost
|
%
|
At CFU
|
%
|
MKT Price
|
%
|
Modified cash basis
|
%
|
Accrul basis
|
%
|
Total respondent
|
Total percentage %
|
1
|
2
|
50
|
2
|
50
|
0
|
0
|
-
|
-
|
-
|
-
|
4
|
100%
|
2
|
-
|
-
|
-
|
-
|
0
|
0%
|
0
|
0%
|
4
|
100%
|
4
|
100%
|
Source: Own survey, 2012
Q 1. How do you
record contributed or donated assets?
Q 2. What kind
of accounting method you use to record and analyze financial data?
It is clear that
the donated fixed assets of the organization valued on the basis of original
cost or the appraised value at the time received (current fair market value).
Though, the entity uses those methods, the general rule for recording of fixed
assets in accounting is to record them at cost and fixed asset donated are
capitalized:
- The accounting method usually followed by the entity (AGOHELD) is accrual bases of accounting
- The generally accepted accounting standard require that financial statement for NGO’s like AGOHELD be prepared using accrual basis of accounting. Thus, revenues are reported when materials or services are received.
4.3. Accuracy of record keeping (Book keeping)
The staff
members have been asked whether records are updated and reconciled and the
reliability of each transaction, the respondent replied as follows:
Table
3. The opinion
of the respondent about the accuracy of record keeping.
Sr. No
|
Yes
|
Percent (%)
|
NO
|
Percent (%)
|
Total
respondent
|
Total percentages
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100
|
2
|
4
|
100%
|
0
|
0%
|
4
|
100
|
Source: Own survey, 2012
Q1. Does your
organization reconcile and update its record timely?
Q 2.Does each
transaction reliable, valuable and clear?
As it is
indicated above, all respondents said that AGOHELD have accurte recording,
summarizing and evaluating process and reconciled and updated with each other.
This can be proved or done by:
- Checking the controlling ledger /general ledger with trail balance.
- Recording each transaction on the cost control sheet and reconcile with general ledger from peachtree accounting records.
4.4. Financial statement in AGOHELD
Two interrelated
questions were raised regarding to financial statement paration, reliability
and relevance of financial statement.
Table
4. The opinion
of respondents regarding to the financial statement preparation.
Sr. No
|
Answers
|
No
of respondent
|
Percent (%)
|
|||
1
|
Statement of
revenue and expenditure
|
1
|
25%
|
|||
2
|
Balance sheet
and statement of revenue and expenditure
|
3
|
75%
|
|||
3
|
Total
|
4
|
100%
|
|||
Yes
|
Percent (%)
|
NO
|
Percent (%)
|
Total
respondents
|
Total percent
|
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
Source: Own survey, 2012
Q1. What types of
financial statement do you produce? (Table 4 above)
Q2. Is your
financial statement reliable and relevant? (Table 5 above)
- Financial statement of the organization are prepared to meet the needs of financial users like donors, trustee or directors presenting the total assets, liabilities and net assets. Statements like income statements; balance sheets that are commonly produced show the financial position of the entity and the changes in net assets.
- Balance sheet:- the organization prepares report from of balance sheet (i.e Asset and liability sections). Assets section includes fixed assets, investments and current assets. The debtors account (liability) include balances from varius trades, sundry and tax payables.
- Statement of revenue and expenditure comprise of :- income from donations, sales of goods and services and expenses incurred for administration, school nd children affairs, projects, cottage industries etc.
- Financial statements prepared by the organization are relevant and reliable to the end users. This due to:
-
recording general ledger, expenditure recording format
and agree with reporting format.
-
Financial statements are expressed in the peachree
format and agree with report format in general, reliable financial statements
are produced for internal and external parties that are helpful to get
additional funds.
4.5. Financial reporting of AGAHELD
Regarding to the
financial reporting of the organization the respondent replied as follows:
Sr.No
|
Yes
|
Percent (%)
|
NO
|
Percent (%)
|
Total respondents
|
Total percent
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
Source: Own survey, 2012
Q1. Does the
system produce and report financial statements timely?
The financial
reporting of AGOHELD is prepared timely (peredically) to control financial
operations. Financial statements and schedules are prepared directl and exclusively
from the accounts at the closing of each fiscal year for both internal and
external parties to get financial aid,
donations and others.
4.6. Budgeting system in AGOHELD
Regarding this
specific issue the organization budgeting system, budget variations and its
effect on reporting practice have been replied as follows:
Table
6. The opinion
of the respondent regarding to the budgeting system
Sr. No
|
Yes
|
Percent
|
No
|
Percent(%)
|
Total
respondent
|
Total
percentage
|
1
|
4
|
100
|
0
|
0%
|
4
|
100%
|
2
|
1
|
25
|
3
|
75%
|
4
|
100%
|
3
|
0
|
0%
|
4
|
100%
|
4
|
100%
|
Source: Own survey, 2012
Q1. Do you use
budgets for a given period of time?
Q2. Do
variations exist between budgeted and actual amounts?
Q3. Do the variations
(if any) have an effect on reporting practice?
The responses
given indicate that the organization prepares a budgeted fund at the beginning
of fiscal period to provide service with available resources. Each level of
management participates in the preparation of budget. Lower level management
prepared budget for their activities. The middle and top level management
executes the budget contacting with the former practice of the physical period.
The organization not usually faces deviations (variations) between the budgeted
and actual amount. This shows the effective and efficient utilization of the
budgeted resources and activities performed because there is no deviation. It
has no effect on reporting of the organization.
As a result, the
donor usually keep their promise for the better performance of the entity.
4.7. Internal control system of AGOHELD
Regarding to
internal controlling method and pre-numbed documents for accounting purpose the
staff members answered as follows.
Table
7. The opinion
of the respondents regarding to the internal control system
Sr. No
|
Yes
|
Percent
|
NO
|
Percent
|
Total
respondent
|
Total percent
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
2
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
Source: Own survey, 2012
Q1. Does your
organization use different methods of designing and implementing control
system?
Q2. Does the
organization use pre-numbered documents for accounting purposes?
Internal
controlling mechanism of the organization provided by the respondents show that
he organization use different methods of designing and implementing controlling
system that enables the organization to protect and detect errors, frauds and
corruptions. Some of the controlling methods of the organization
-
Monthly cash count
-
Bank reconciliation to control cash at bank and the
entity book balance
-
Follow procurement procedures, use serially numbered
invoices.
-
Check general ledger records.
-
Use pre-numbered documents for accounting.
In general, the
controlling mechanisms of AGOHELD is very strong that enables them to minimize
corruption, frauds and errors.
4.8. Sources of fund
Questions like
source of funds, failure of promised donations, and their accounting effect
have been replied by the staff members as follows.
Sr.No
|
Yes
|
Percent (%)
|
NO
|
Percent (%)
|
Total
respondents
|
Total percent
|
1
|
2
|
50%
|
2
|
50%
|
4
|
100%
|
Source: Own survey, 2012
Q1. Is there any
failure from promised donors of funds for your planned project?
The source of
funds are donations, internal activites and sometimes government subsidies from
higher to lower consecutively. This show the sources of fund is very few and usually
depends on external bodies. On the other hand, the prominnt sources from
promised donors fail to keep their promised. However, failures to keep promise
do not have effect on the accounting
treatment of the organization.
4.9. Accounting manuals and consistency with FASB standard.
Two questions
were replied by the respondent about the organization’s accounting manual and
consistency with FASB standard
Table
9. The opinion
of the respondents regarding to the organization accounting manual and FASB
Sr.No
|
Yes
|
Percent (%)
|
NO
|
Percent (%)
|
Total
respondents
|
Total percent
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
1
|
4
|
100%
|
0
|
0%
|
4
|
100%
|
Source: Own survey, 2012
Q1. Do your
organization prepare its financial statement according to financial accounting
standard board (FASB) statement?
Q2. Does your
accounting system have accounting manual?
From the tabular
information provided, respondents of the organization has accounting manual
that guides procedures in recording, summarizing, evaluating and interpreting
accounting transactions as well as reporting to the end users and prepares its
financial statement according to financial accounting standard board (FASB).
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1. Summary
The student researcher has tried to see and
explain the accounting and reporting practice of AGOHELD. The student
researcher has tried to use primary source of information from the selected
employees (staff) by distributing self administered questionnaires, about 10
questionnaires has been disseminated but, only 4 questionnaires responded
successfully. Generally the student researcher has observed the following
summary from the data analysis.
-
AGOHELD employees (members) have a crear understanding of
accounting practices and financial reports covering all funds and financial transactions.
-
Fixed assets are valued at their original costs and the
organization uses accrual basis of accounting, thus revenues are reported when
materials or services are receivec.
-
AGOHELD has a better record keeping system. This,
recording, summarizing and evaluating process are accurate and relied with
generally accepted accounting principles (GAAPs).
-
Financial statements are prepared to meet financial
users which are relevant and reliable to those parties.
-
Financial reports are prepared periodically. This is
because to control financial operations and to satisfy the end users of the
report like donors, government.
-
AGOHELD managements participate in budgeting of funds.
The lower level managements prepare budget for their activities and he middle
higher management executes the budgeted fund contrasting with the former
practice of the fiscal period and the current plans.
-
AGOHELD has operation manuals to accomplish their
activities of recording, summarizing, and evaluating and reporting of financial
transactions mannuals that guide their operation includes all the necessary
relevant information.
-
The internal controlling mechanisms of the organization
are very strong so as to minimize and detect corporations, froud and errors.
-
The prominent sources of funds of AGOHELD are donations
(contributions), internal activities and government subsidies.
5.2. Conclusion
The student
researcher has tried to study and explain the accounting and reporting practice
of AGOHELD, so in order to generalize of the study AGOHELD employees or members
have a clear understanding accounting practice and financial reports covering
all funds and financial transactions. AGOHELD has a better record keeping
systems. Thus recording, summarizing and evaluating process are accurate and relied
with Generally accepted accounting practice
Financial
statements are prepared to meet financial users and financial reports are
prepared periodically because to control fincial operations and to satisfy the
end users of like donors, governments. AGOHELD’s major source of fund is
donations or contributions.
5.3. Recommendation
Over all
activities of the organization have been tasted in the examination of the
accounting and reporting practices. The following points are important for the
improvement and well bing of the entity.
-
Majority source of funds of the organization is
donations (contributions) i.e. if there is no donation the organization will
stop in operation so, to avoid dependency AGOHELD should concentrate more on
internal activities and fund raising options.
-
Donated fixed assets are valued at their original costs
but, the general rule for recording fixed assets account is at its current fair
market value or the net appraised value. Because it helps the organization to
deduct depreciations that was recorded in the memorandum forms. So, valuation
of fixed assets at their current fair market value should be considered.
-
The data gathered in the examination period implies
that some donors fail to keep their promises. AGOHELD should solve those problems
having discussion, and strong relations with its customers (donors) so as to
keep their promises.
-
Preparation of financial statements should be
standardized. AGOHELD mainly concerned with preparation of statement of revenue
and expenditure and balance sheet. But, FASB inllustrates financial statement
to include, statement of functional position, a statement of activities,
statement of cash flows and financial statement disclosures.
-
In general government and non-government bodies should
encourage the institution to help orphan children’s and homeless people to
become good and productive citizens of the country.
BIBLIOGRAPHY
1. Edward.Lynn, Robbert J. Freeman,
(1998) Fund Accounting Theory and
practice 7th ed
2. Fess. Warren ,(1989), Principle Accounting 16
edition.
3. Freeman shoulders,
(2000)Government and not-for profit organizations/ 9th ed.
4. Management control in Non
–profit organizations
5. Larson E.J, (200), Modern
Advanced accounting 8th edition
6. Leon E. Hay and earl R. Wilson,
(1997) accounting for governmental and non profit entities 8th ed.
7. Nor Walk; (1989) FASB statement
No 116
8. Smith, the complete Guide to Non
profit organizations 1st edition
9. Waltehr B. Meigs, A.N Mosich,
E.J Larson, Modern Advanced Accounting. 7th edition
Part I: Personal profile
Part I: Personal profile
1. Age : 20-30 ¨ 31-40 ¨ 41-50 ¨ 50 and above¨
2. Gender Male ¨ Female ¨
3. Education
level College diploma¨
PHD/MD¨
Degree ¨ Masters ¨
Other please
specify_________________________
4. Name of the
department of that you are currently working
________________________________________________________________________________________________________________________________________________
5. What is your
wrrent position in the organization?
________________________________________________________________________________________________________________________________________________
6. Area of your specialization
Accounting and finance ¨ Sales department ¨
Purchasing department ¨ Cash fund ¨
HR/payroll department ¨
Other please
specify____________________________________________
7. For low long
have you been working in your current position?
1-<3¨ 6-<6¨ 6<9¨ 9 and above ¨
8. Years of
working experience in the accounting profession
1-<3¨ 6-<9¨
3-<6¨ 9 and above ¨
Part II
Questions on accounting professions
1. Do you have a
clear understanding of accounting practice of your organization? Yes
¨ NO¨
If “NO” can you
mention some reason or justification?
__________________________________________________________________
2. Does your
financial report cover all funds and financial transactions?
Yes ¨ NO¨
3. How do you
record (measure) contributed or donated assts?
At cost ¨ At current fair value ¨ At market price ¨
4. What kinds of
accounting method you use to record and analyze financial data?
Cash basis ¨ Modified cash basis ¨ accrual basis ¨
5. Does your
organization reconcile and update its record timely?
Yes ¨ NO¨
If your answer
is “NO’ can you mention some reason?
_________________________________________________________________
6. Does each
transaction reliable, valuable and clear
Yes ¨ NO¨
7. How do you
proof the reliability of each transaction?
Please
specify________________________________________________
8. Do you have a
clear understanding about the reporting practice of your organization?
Yes ¨ NO¨
9. What type of
financial statement do you produce? Please specify
__________________________________________________________________
10. Do you use a
standard format for reporting financial segment ?
Yes ¨ NO¨
11. Is your
financial statement reliable and relevant?
Yes ¨ NO¨
If Yes (above
question 14), how do you express the relevancy and reliability of the financial
statements? Please specify?
____________________________________________________________________
12. Does the
system produce and report financial statement timely?
Yes ¨ NO¨
13. Do you use
budgets for a given period of time?
Yes ¨ NO¨
If “NO” can you
mention some reason? _______________________________________
14. Do
Variations exit between budgeted and actual amount?
Yes ¨ NO¨
15. Do the
variations (if any) effect on reporting practice?
Yes ¨ NO¨
16. Does you
organization use different methods of designing and implementing control
system?
If yes (above Q 16).would you please
mention those controlling mechanism?
______________________________________________________________________
17. Does the
organization use pre-numbered documents for accounting purpose? Yes
¨ NO¨
18.Would you
please rank your organization source of fund from highest to lowest? 1.
Donation (contribution) ¨
2. Internal acctivies ¨
3. Gov’t subsides¨
4. Any other , please specify
__________________________
19. Is there any
failure form promised do nors of funds for your planned project (S)
Yes ¨ NO¨
Any other please
specify ____________________________________________
20. If Yes,
(above 20) (if any) have an effect on your accounting treatments?
Yes ¨ NO¨
Any other,
please specify ____________________________________________
21. Do your
organization prepare its financial statement according to financial accounting
standard Baoard (FASB) statements?
Yes ¨ NO¨
22. Does your
accounting system have accounting manual?
Yes ¨ NO ¨
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