New Delhi, July 6: The Institute of Chartered Accountants of India (ICAI) has suggested a standardised framework for the preparation and presentation of financial statements of non-profit organisations (NPOs).
“The idea is to come up with an accounting standard for this sector, eventually,” said Rajkumar S. Adukia, chairman, research committee, ICAI, which has brought out a new set of guidelines for the sector.
“NPOs are today considered one of the major players in the socio-economic system of the country,” he said. Different accounting practices are being followed by various NPOs.
“Moreover, information provided by the financial statements of one NPO is not comparable with that provided by the other,” he added.
A spokesperson for ICAI said, “The key features of the suggestions include applying the accrual system of accounting to the NPOs.”
Many of the NPOs follow a non-accrual basis of accounting, which means they often do not reflect the previous year’s profits and losses, and their accounting practices are generally driven by the requirements of tax and other laws, said Adukia.
In India, registered NPOs are governed by the provisions of national or state statutes under which they are registered. Currently, there is no national regulatory body or framework governing the NPO sector in India.
Other guidelines suggest applying all the normal accounting standards issued by the ICAI to these non-profit bodies. Another vital area is the development of formats for financial statements for these organisations.
It has been suggested that these NPOs also disclose other important non-financial details like membership and activities.
The guidelines have been framed keeping in mind existing practices as well as norms followed in other countries.
Prime objective of the ‘for profit’ organisation is wealth maximisation. On the other hand, NPOs exist primarily to render services without a profit motive.