Which accounting standards apply to NGOs in the developing world?
In fact there are no global accounting standards that apply to all NGOs. This is an area that standard setting bodies are trying to address. There are four main standards which are likely to form the basis for any future global standard for NGOs.
International financial reporting standards (IFRS) are deisgned for general purpose financial statements for profit-making entities, but are often applied to NGOs. The recently released IFRS for SMEs (Small and medium-sized entities) is much shorter and easier to digest.
- UK Charities SORP
The UK Statement of recommended practice for charities is only applicable to charities in the UK. It has good recommendations for fund accounting and narrative reporting. At the time of writing (May 2010) UK reporting standards are changing and the future of this SORP is in question.
International public sector accounting standards are applicable to governments. They consider cash accounting, fund accounting, non-reciprocal transactions and assets that are not used to generate profit.
- US GAAP
Unites States generally accepted accounting princples includes very detailed guidelines of how financial reports should be drawn up for NPIs (Non profit institutions).
Until such time as a global applicable standard is developed, IFRS (or your own country's accounting standards if they exist) is probably the most useful framework to give a true and fair view, although adjustments may be needed to consider cash accounting, non capitalisation of assets, tracking of restricted and unrestricted funds, basis of recognition of grant income and narrative reporting.
Policies on grant income and fixed assets
Accounting policies on grant income and fixed assets are often contentious in NGOs. For more guidance on these areas, follow the links below: