Mikeleaks

ACCONTING AND REPORTING PRACTICE OF NGO’S IN THE CASE OF AGOHELD (A CASE STUDY AT ADDIS
ABEBA)

ACCOUNTING AND REPORTING PRACTICE OF NGO’S 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 NGO’s 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.

Table of content
Contents page

Acknowledgement

Abstract

Table of content

List of table

Acronym

CHAPTER ONE

Introduction

1.1. Background of the study

1.2. Background of the organization

1.3. Statement of the problem

1.4. Objectives of the study

1.4.1. General objective

1.5. Significance of the study

1.6. Scop and limitation of the study

1.6.1 Scope of the study

1.6.2. Limitation of the study

1.7. Organization of the paper

CHAPTER TWO

Litterateur review

2.1. Funds and fund accounting

2.2. Source of funds

2.2.1. Fund raising

2.2.2. Fund raising options

2.3. Allocation and utilization of fund

2.3.1. Budgeting of fund

2.3.2. Budget preparation

2.4. Characteristics of non profit organization

2.5. Accounting for non –profit organizations

2.6. Fund accounting by Non profit organizations

2.6.1. Expenses and losses for unrestricted funds

2.6.2. Assets and liabilities of unrestricted fund

2.6.3. Fund balance of unrestricted fund

2.6.4. Revenues and gains of unrestricted fund

2.6.5. Revenue for services

2.6.6. contribute material services and faculties

2.6.7. Pledges

2.7. Valuation of Fixed Assets

2.8. Depreciation

2.8.1. Depreciation expense of nonprofit organization

2.10. Financial statements NGO’’s purpose

2.10.1 Financial accounting standards Board

2.10.2. Statement of financial position

2.11. Financial reporting

2.11.1. Interim Finaical reports

2.11.2. The Annual financial report

CHAPTER THREE

Research design and methodology

3.1. Research design

3.2. Source of data and data collection techniques

3.2.1. Source of data

3.2.2. Method Of data collection

3.3. Target population and method of sampling

3.4. Method of data analysis and presentation

3.4.1. Method of data Analysis

3.4.2. Method of presenting the out came

CHAPTER FOUR

Data analysis and interpretation

4.1. General question to practiners

4.2. Valuation of assets and methods of accounting

4.3. Accuracy of record keeping (Book keeping)

4.4. Financial statement in AGOHELD

4.5. Financial reporting of AGAHELD

4.6. Budgeting system in AGOHELD

4.7. Internal control system of AGOHELD

4.8. Sources of fund

4.9. Accounting manuals and consistency with FASB standard

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1. Summary

5.2. Conclusion

5.3. Recommendation

BIBLIOGRAPHY
List of table

Tables page

Table 1. The opinion of the respondent regarding to the accounting practice of the organization.

Table 2. The opinion of the respondents concerning the valuation of fixed asset and accounting method

Table 3. The opinion of the respondent about the accuracy of record keeping.

Table 4. The opinion of respondents regarding to the financial statement preparation.

Table 5. The opinion of the respondent regarding to financial reporting system

Table 6. The opinion of the respondent regarding to the budgeting system

Table 7. The opinion of the respondents regarding to the internal control system

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

Table 9. The opinion of the respondents regarding to the organization accounting manual and FASB

Acronomy

AGOHELD: Abebech Gobena Yehitsanat Kebekabena Limat Dirigit

NGO’s: Non Governmental Organizations

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 entity’s 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 NGO’s 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 mother’s 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 it’s developmental aspect and now the official name of the organization is
AGOHELD which means Ababech Gobena children’s 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.
Abebech’s 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 NGO’s 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 NGO’s
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 NGO’s 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 church’s, 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 organization’s goals.
What ever words are used to describe it, all NPO’s 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 NPO’s 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).

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

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 NPO’s 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 Hospital’s 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 NPO’s 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, 15% of the pledges are
considered to be doubtful of collection. The journal entries. (E.J. Larson P. 731)

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
beneficiary’s 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 NPO’s. 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 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 donor’s original cost and
accumulative allowance for depreciation should be set up on the NGOs unit’s books. Since a recoding of
the donor’s 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)

2.10. Financial statements NGO’’s 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 allow’s 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 doesn’t require any specific statement format. (Leon Hay Earl R. Willson
245)

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 NGO’s 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 Finanical 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 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).

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.

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.

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 respondent

Total percentage (%)

1

100%

0%

100%

100%

0%

100%

Source: Own survey, 2012

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

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 basis

Accrul basis

Total respondent

Total percentage %

50

50

-
-

100%

0%

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 NGO’s 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:

Table 3. The opinion of the respondent about the accuracy of record keeping.

Sr. No

Yes

Percent (%)

NO

Percent (%)

Total respondent

Total percentages

100%

0%

100

100%
0

0%

100

Source: Own survey, 2012

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.

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. No

Answers

No of respondent

Percent (%)
1

Statement of revenue and expenditure

25%

Balance sheet and statement of revenue and expenditure

75%

Total

100%

Yes

Percent (%)

NO

Percent (%)

Total respondents

Total percent

100%

0%

4
100%

Source: Own survey, 2012

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:

- 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 (%)

NO

Percent (%)

Total respondents

Total percent

100%

0%

100%

Source: Own survey, 2012

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 respondent

Total percentage

100

0%

100%

25

75%

100%

0
0%

100%

100%

Source: Own survey, 2012

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.

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

Yes

Percent

NO

Percent

Total respondent

Total percent

100%

0%

100%

100%

0%

100%

Source: Own survey, 2012

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

Sr.No

Yes

Percent (%)
NO

Percent (%)

Total respondents

Total percent

50%

50%

100%

Source: Own survey, 2012

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 organization’s 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 (%)

NO

Percent (%)

Total respondents

Total percent

100%

0%

100%

100%

0%

100%

Source: Own survey, 2012

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).

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.
- 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.
AGOHELD’s 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 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 children’s and homeless people to become good and productive citizens of the country.

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

Part I: Personal profile

1. Age : 20-30 ¨ 31-40 ¨ 41-50 ¨ 50 and above¨

2. Gender Male ¨ Female ¨

3. Education level 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 ¨

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¨

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. Gov’t 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¨

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 ¨

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