ACCOUNTING AND REPORTING PRACTICE OF NGOS 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)

JIMMA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING

MAY, 2012
JIMMA, ETHIOPIA

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
This study was aimed to asses accounting and reporting practice of NGOs 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.

II

Table of content
Contents
page
Acknowledgement................................................................................................................I
Abstract...............................................................................................................................II
Table of content.................................................................................................................III
List of table.........................................................................................................................V
Acronym...........................................................................................................................VI
CHAPTER ONE..................................................................................................................1
Introduction..........................................................................................................................1
1.1. Background of the study...........................................................................................1
1.2. Background of the organization................................................................................2
1.3. Statement of the problem..........................................................................................4
1.4. Objectives of the study.............................................................................................5
1.4.1. General objective...............................................................................................5
1.5. Significance of the study..........................................................................................5
1.6. Scop and limitation of the study...............................................................................5
1.6.1 Scope of the study...............................................................................................5
1.6.2. Limitation of the study.......................................................................................6
1.7. Organization of the paper.........................................................................................6
CHAPTER TWO.................................................................................................................7
Litterateur review.................................................................................................................7
2.1. Funds and fund accounting.......................................................................................7
2.2. Source of funds.........................................................................................................7
2.2.1. Fund raising.......................................................................................................7
2.2.2. Fund raising options..........................................................................................8
2.3. Allocation and utilization of fund.............................................................................9
2.3.1. Budgeting of fund..............................................................................................9
2.3.2. Budget preparation.............................................................................................9
2.4. Characteristics of non profit organization................................................................9
2.5. Accounting for non profit organizations...............................................................10
2.6. Fund accounting by Non profit organizations........................................................10
2.6.1. Expenses and losses for unrestricted funds......................................................11
2.6.2. Assets and liabilities of unrestricted fund........................................................11
2.6.3. Fund balance of unrestricted fund....................................................................11
2.6.4. Revenues and gains of unrestricted fund.........................................................12
2.6.5. Revenue for services........................................................................................12
2.6.6. contribute material services and faculties........................................................12
2.6.7. Pledges.............................................................................................................12
2.7. Valuation of Fixed Assets.......................................................................................14
2.8. Depreciation............................................................................................................14
2.8.1. Depreciation expense of nonprofit organization..............................................14
2.10. Financial statements NGOs purpose...................................................................15
2.10.1 Financial accounting standards Board............................................................15
2.10.2. Statement of financial position.....................................................................16
2.11. Financial reporting................................................................................................16

III

2.11.1. Interim Finaical reports..................................................................................16

2.11.2. The Annual financial report...........................................................................17
CHAPTER THREE...........................................................................................................18
Research design and methodology....................................................................................18
3.1. Research design......................................................................................................18
3.2. Source of data and data collection techniques........................................................18
3.2.1. Source of data..................................................................................................18
3.2.2. Method Of data collection...............................................................................18
3.3. Target population and method of sampling............................................................19
3.4. Method of data analysis and presentation...............................................................19
3.4.1. Method of data Analysis..................................................................................19
3.4.2. Method of presenting the out came.................................................................19
CHAPTER FOUR.............................................................................................................20
Data analysis and interpretation.........................................................................................20
4.1. General question to practiners................................................................................20
4.2. Valuation of assets and methods of accounting......................................................21
4.3. Accuracy of record keeping (Book keeping)..........................................................21
4.4. Financial statement in AGOHELD.........................................................................23
4.5. Financial reporting of AGAHELD.........................................................................24
4.6. Budgeting system in AGOHELD...........................................................................24
4.7. Internal control system of AGOHELD...................................................................25
4.8. Sources of fund.......................................................................................................26
4.9. Accounting manuals and consistency with FASB standard....................................27
CHAPTER FIVE...............................................................................................................29
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.................29
5.1. Summary.................................................................................................................29
5.2. Conclusion..............................................................................................................30
5.3. Recommendation....................................................................................................30
BIBLIOGRAPHY..............................................................................................................32

IV

List of table
Tables

page

Table 1. The opinion of the respondent regarding to the accounting practice of the
organization.......................................................................................................................20
Table 2. The opinion of the respondents concerning the valuation of fixed asset and
accounting method.............................................................................................................21
Table 3. The opinion of the respondent about the accuracy of record keeping.................22
Table 4. The opinion of respondents regarding to the financial statement preparation.....23
Table 5. The opinion of the respondent regarding to financial reporting system..............24
Table 6. The opinion of the respondent regarding to the budgeting system......................25
Table 7. The opinion of the respondents regarding to the internal control system............26
Table 8. The opinion of the respondent regarding to the organizations source of fund....27
Table 9. The opinion of the respondents regarding to the organization accounting manual
and FASB...........................................................................................................................27

Acronym
AGOHELD: Abebech Gobena Yehitsanat Kebekabena Limat Dirigit
NGOs: Non Governmental Organizations

VI

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 entitys 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 NGOs
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 mothers 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 its developmental aspect and
now the official name of the organization is AGOHELD which means Ababech Gobena
childrens 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.
Abebechs 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.
Mission
-

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 NGOs 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

NGOs 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 NGOs 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 churchs,
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 organizations goals. What ever words are used to describe it, all NPOs 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 NPOs 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).

10

A. 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 NPOs typically recognize all expense in its unrestricted fund. Losses may be
recognized in other funds as well as in the unrestricted fund. Expense of NPOs 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)

11

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 NPOs 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
Hospitals is patient service records for June 1999 include. The following journal entries
are appropriate for the community Hospital. (E.J. Larosn) P.732).

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 NPOs 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,

12

15% of the pledges are considered to be doubtful of collection. The journal entries. (E.J.
Larson P. 731)
B. 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 beneficiarys 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 NPOs. 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

13

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 donors original
cost and accumulative allowance for depreciation should be set up on the NGOs units
books. Since a recoding of the donors 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)

14

2.10. Financial statements NGOs 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 allows 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
doesnt require any specific statement format. (Leon Hay Earl R. Willson 245)

15

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 NGOs 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 Finaical 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
16

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).

17

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.

18

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.

19

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

(%)
1
4
100%
2
4
100%
Source: Own survey, 2012

Total

respondent percentage
0
0

0%
0%

4
4

(%)
100%
100%

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

20

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

Accrul

basis

basis
1

50
-

Total

Total

responde

percentage %

nt

100%

0
-

100%

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
NGOs 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:

21

Table 3. The opinion of the respondent about the accuracy of record keeping.
Sr. No

Yes

Percent

(%)
1
4
100%
2
4
100%
Source: Own survey, 2012

NO

Percent

Total

Total

0
0

(%)
0%
0%

respondent percentages
4
100
4
100

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.

22

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.

Answers

No
1
2

respondent
Statement of revenue and expenditure
1
25%
Balance sheet and statement of revenue 3
75%

and expenditure
Total
Yes
Percent

(%)
1
4
100%
Source: Own survey, 2012

No of

Percent (%)

NO

4
Percent

100%
Total

(%)
0%

respondents percent
4
100%

Total

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:

23

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:
Table 5. The opinion of the respondent regarding to financial reporting system
Sr.No

Yes

Percent

(%)
1
4
100%
Source: Own survey, 2012

NO

Percent

Total

Total

(%)
0%

respondents percent
4
100%

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

Total

24

1
4
100
2
1
25
3
0
0%
Source: Own survey, 2012

0
3
4

0%
75%
100%

respondent
4
4
4

percentage
100%
100%
100%

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.

25

Table 7. The opinion of the respondents regarding to the internal control system
Sr. No

Yes

Percent

1
4
100%
2
4
100%
Source: Own survey, 2012

NO

Percent

Total

Total

0
0

0%
0%

respondent percent
4
100%
4
100%

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.

Table 8. The opinion of the respondent regarding to the organizations source of fund
26

Sr.No

Yes

Percent

(%)
1
2
50%
Source: Own survey, 2012

NO

Percent

Total

Total

(%)
50%

respondents percent
4
100%

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 organizations 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

(%)
1
4
100%
1
4
100%
Source: Own survey, 2012

NO

Percent

Total

Total

0
0

(%)
0%
0%

respondents percent
4
100%
4
100%

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).

27

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.
28

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. AGOHELDs 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

29

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 childrens and homeless people to become good and productive
citizens of the country.

30

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

31

Part I: Personal profile

1. Age :

20-30

2. Gender

Male

3. Education level

31-40

41-50

50 and above

Female

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

32

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

33

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. Govt 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

34

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

35