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

Transcription

1 NFPO FINANCIAL REPORTING FRAMEWORK Presented by: J.K. Mulumba of

2 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 IPSAS GAAPs? IFRS was formulated to protect investors/capital providers (principals) from scrupulous managers (agents)- FPOs IFRS for SMEs small and medium FPOs IPSAS for public entities NFPOs/NGOs-????

3 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-SORPs USA-SFAS since 1973 Canada-Part III of the CICA Handbook South Africa-IFRS Australia-IFRS but developing special framework New Zealand-IPSAS Asia Pacific Philanthropic Consortium (APPC) (Bangladesh, China, India, Indonesia, Pakistan, Philippines, Thailand, Hong Kong, and SAR)- Use the Accounting Guide for NGOs

4 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 bankruptcies 1807-Evolved into the Napoleonic commercial code used in Europe as a basis for government taxation 1973-The IASC was set up by the World Accounting Congress Joined by industrialized countries to form IASC Negotiated with IOSCO to form IAS/IFRS to avoid double audits for secondary stock market listing Current improvements to financial reporting-deloitte, Revised framework

5 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)

6 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 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.

7 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 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!

8 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 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)

9 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 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

10 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 based Types 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.

11 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 observations To encourage theory development useful in the study To provide a context for interpreting study findings To clarify on concepts and propose relationships

12 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 area They explain a relationship between variables They 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 directed It defines and determines the direction and goal of a research problem

13 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 needs The objective of financial statements Underlying assumptions; accrual and cash basis Qualitative aspects of financial statements Elements of financial statements Recognition of elements in the financial statements Measurement of elements of financial statements Concepts of capital and capital maintenance

14 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 theory Stewardship theory Institutional theories Resource dependency theory (Mimetic, normative and coercive isomorphism & Fund Accounting) Stakeholder theory Communication theory

15 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

16 WAY F O R WA R D Define the problem Define the scope Consult stakeholders Review related literature and benchmark Develop possible solutions after considering implications Present a conceptual/theoretical framework, standards and report guidelines t stakeholders