The need for specific accounting principles for non-profit organisations’ assets without economic benefits, restricted donations and funds

Cobus Rossouw

doi:10.4102/jef.v6i2.270

Abstract

Non-profit (or “not-for-profit”) organisations are faced with specific challenges in their financial reporting when they are required to or chose to apply formal financial reporting standards. The IFRSs or the IFRS for SMEs are meant for business entities and are not specifically developed to be applicable to non-profit organisations. Prior research suggested that the main problems of nonprofit accounting centre on the recognition of assets with no future economic benefits, but with service potential, the recognition of restricted income and the so-called fund accounting. This research analyses the requirements of IFRSs, IFRS for SMEs and the Australian accounting standards for non-profit organisation relating to these aspects. The article then presents the views of South African accounting practitioners who are involved in the financial reporting of non-profit organisations on these issues.

Highlights

AND BACKGROUNDA non-profit or not-for-profit organisation can be described as any organisation whose principal objective is not the generation of profit (Institute of Chartered Accountants in Australia, 2006; Accounting Standards Board (AASB), 2009)
Against the background of the literature review, which suggested that specific accounting principles are needed for non-profit organisations, the accounting practitioners were asked whether they believe that specific and unique accounting standards or guidelines for non-profit organisation, dealing with specific accounting principles for these organisations, are needed
The South African standard setters and regulating bodies should take note of this, and attention should be given to the financial reporting of non-profit organisations, especially those that are currently required to comply with IFRSs

Summary

Introduction

AND BACKGROUNDA non-profit or not-for-profit organisation can be described as any organisation whose principal objective is not the generation of profit (Institute of Chartered Accountants in Australia, 2006; AASB, 2009). As far as financial reporting is concern, South African non-profit organisations may feel like orphans – abandoned and left behind. Formal financial reporting standards applicable in South Africa are basically the IFRSs or the IFRS for SMEs, which are not designed to apply to non-profit organisations, but to profit-orientated entities (Lee & Teixeira, 2004). It seems that current legislation for registered nonprofit organisations (RSA, 1997) requires compliance with “standards of generally accepted accounting practices” (section 17).

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Conclusion