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Selam Alie Proposal
Selam Alie Proposal
PREPARED BY:
SELAM ALIE
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ABSTRACT
This study will aim to asses accounting and reporting practice of NGO’s in the case of
LINKETHIOPIA. The main objective of the study is to assess accounting and reporting 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
is 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
destructing self -administered questionnaires by face to face interviewing whereas secondary data
was obtained from different reference books, research papers, company record, journals,
magazines and different websites. Finally, as a conclusion LINKETHIOPIA employees or
members have a clear understanding of accounting practice in financial reports covering all funds
and financial transactions and the recommendation is to avoid dependency LINKETHIOPIA
should concentrate more on internal activities and fund raising options.
Key words: - NGO’s, fund accounting, Asset, pledge, financial report, fund raising, budgetary
preparation.
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Table of Contents
ABSTRACT....................................................................................................................................................... i
ABBREVATION .............................................................................................................................................. iv
CHAPTER ONE ............................................................................................................................................... 1
Introduction .................................................................................................................................................. 1
1.1 Background of the study ..................................................................................................................... 1
1.2. Statement of the problem. ................................................................................................................ 2
1.3. Research question ............................................................................................................................. 3
1.4. Objectives of the study ...................................................................................................................... 4
1.4.1. General objective ........................................................................................................................ 4
1.4.2. Specific objective ........................................................................................................................ 4
1.5. Significance of the study .................................................................................................................... 4
1.6. Scope of the study ............................................................................................................................. 4
1.7. Organization of the paper .................................................................................................................. 5
CHAPTER TWO .............................................................................................................................................. 6
2. Literature review ....................................................................................................................................... 6
2.1. Funds and fund accounting ................................................................................................................ 6
2.2. Source of fund raising ........................................................................................................................ 6
2.3. Budgeting of fund .............................................................................................................................. 7
2.4. Budget preparation ............................................................................................................................ 7
2.5. Characteristics of non-profit organization ......................................................................................... 7
2.6. Accounting for non –profit organizations .......................................................................................... 8
2.7. Fund accounting by Non-profit organizations ................................................................................... 8
2.7.1. Expenses and losses for unrestricted funds ................................................................................ 9
2.7.2. Assets and liabilities of unrestricted fund................................................................................... 9
2.7.3. Fund balance of unrestricted fund.............................................................................................. 9
2.7.4. Revenues and gains of unrestricted fund ................................................................................... 9
2.7.5. Revenue for services ................................................................................................................... 9
2.7.6. contribute material services and faculties .................................................................................. 9
2.7.7. Pledges ...................................................................................................................................... 10
2.8. Valuation of Fixed Assets ................................................................................................................. 10
2.9. Depreciation expense of nonprofit organization ............................................................................. 10
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2.10. Financial statements NGO’’s purpose ............................................................................................ 10
2.10.1. Financial accounting standards Board .................................................................................... 11
2.10.2. Statement of financial position ............................................................................................... 11
2.11. Financial reporting ......................................................................................................................... 11
2.12. The Annual financial report ........................................................................................................... 12
CHAPTER THREE .......................................................................................................................................... 13
Research methodology ............................................................................................................................... 13
3. Research design .................................................................................................................................. 13
3.1 Research approach............................................................................................................................ 13
3.2. Source of data .................................................................................................................................. 14
3.3. Method Of data collection ............................................................................................................... 14
3.4. Target population ............................................................................................................................ 14
3.5. Method of data Analysis and presentation ..................................................................................... 14
REFERENCES ................................................................................................................................................ 15
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ABBREVATION
NGO’s:- Non-Governmental Organizations
FASB: - Financial Accounting Standard Bored
GAAP:-General Accepted Accounting Principle
ARB: -Accounting research Bulletin
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CHAPTER ONE
Introduction
1.1 Background of the study
International non-governmental organizations have a history dating back to at least 1839.It has
been estimated that by 1914 there were 1083 NGOs. International NGOs were important in the
anti-slavery movement and the movement for women's suffrage, and reached a peak at the time of
the World Disarmament Conference. However, the phrase "non-governmental organization" only
came into popular use with the establishment of the United Nations Organization in 1945 with
provisions in Article 71 of Chapter 10 of the United Nations Charter [12] for a consultative role
for organizations which are neither governments nor member states: it is defined as "any
international organization that is not founded by an international treaty".
They work for uplifting the backward sections of the community. Moreover, the major function
which is performed by NGOs is to bridge the gap of inequalities and unfair treatments.
Additionally, they ardently strive to make the lives of victims and poor people better.it plays a
critical part in developing society, improving communities, and promoting citizen participation.
NGOs are a subgroup of organizations founded by citizens, which include clubs and associations
that provide services to their members and others.NGO’s battle for the rights of children Non-
governmental organizations (NGOs) are essential institutional players in mobilizing regional
economic growth and development, community growth and development, motivating people, and
implementing social welfare program(s) to support government effort(s) at the grassroots level.
Generally, the NGO label is given to organizations operating on an international level although
some countries classify their own civil society groups as NGOs.
Link Ethiopia was started as Gondar Link in 1996, and was originally a single link between
Challoner’s Grammar School in American, UK and Fusillades Comprehensive Secondary School
in Gondar, Ethiopia. Since then it has grown, not only to manage links between 110 schools in the
UK and 80 in Ethiopia. It hold up to achieve from provide full boarding service to orphans,
supporting community endeavor up to empowering student in the community. Link Ethiopia now
benefits around 100,000 children in Ethiopia through school linking and projects and 30,000 in the
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UK through cultural exchange programmed (challengers,) (1998) Link Ethiopia’s vision is a world
in which everyone has access to quality education, can reach their full potential, contribute
to their community and change the world for the better and Link Ethiopia changes lives through
education. We work in partnership with local communities to improve access to quality education
for all students in Ethiopia, encouraging mutual understanding and respect between different
cultures. When poor accounting system is happening, there are some consequences
misappropriation of Assets, Civil & Criminal Penalties, Loss of Reputation and Loss of Human
Capital etc.
Most NGO’s face some problems in implementing and applying the theories and practices of
appropriate fund accounting systems, some of them could be will not prepare financial reports
covering all funds and financial transaction during the period, if the promised donation is not
obtained to finalize the project, the variation between budgeted and actual of their consequence
will effect in the accounting and reporting practice, there will be inconsistency in implementing
and applying the principles set by FASB in relation to NGO’s accounting.
Some of the consequences of Poor Accounting system are: Misappropriation of Assets, Civil &
Criminal Penalties, Loss of Reputation, and Loss of Human Capital.
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Limited studies have been done on assessment of accounting and reporting practices. Most
researches concentrated on its financial management which have focused on the anticipated the
effect of financial management which spelled out the categorization of administrative vs. financial
practice of the organization. According to Seblewongel (2015) assessment of financial
management practice in selected INGO working in the health sector (Addis Abeba), she concluded
that Better financial performance can be achieved if an overall financial management system on
all the basic finance building blocks namely financial planning, Budgeting, Recording, Internal
controls, monitoring and evaluation system exists. And the other or some are concentrate on its
accounting and reporting practice. According to Birhan Admas (2012), the researchers identified
the narrowing down of scope of accounting and reporting engagement and reducing the
effectiveness of NGO’s (in the case of AGOHELD in Jimma).He conclude that 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
What was the effect of the accounting and reporting practice in LINKETHIOPIA
organization?
If the financial report covering all funds and financial transactions do not prepare during
the period?
What is the result of accounting and reporting practice of LINKETHIOPIA Organization
having 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 is the result of accounting and reporting practice of LINKETHIOPIA Organization has
in mobilizing funds from donors?
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1.4. Objectives of the study
1.4.1. General objective
The general objective of the study will to assess the accounting and reporting practice of
LINKETHIOPIA ORGANIZATION.
2. To check the financial report covering all funds and financial transactions do not prepare during
the period
3. To assess the result of accounting and reporting practice of LINKETHIOPIA Organization have if
the donors do not keep their promises to provide funds
4. To check the consequence on accounting practice if there is a variation between budgeted and
actual variance activity
5. To asses the result of accounting and reporting practice of LINKETHIOPIA Organization has in
mobilizing funds from donors
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1.7. Organization of the paper
The proposal paper has three 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 Literature reviews and deals with all related documents
about NGO’s. The third chapter presents/discusses about Methodology research design, source of
data and collection techniques, target population and sampling methods..
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CHAPTER TWO
2. Literature review
NGO’s (Non-governmental organizations) are a legal and accounting entity that is operated for the
benefit of the society’s hole rather than for benefit of an individual. 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. (Warren, 1996)
A, 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. (Nor walk, 1989)
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B Acquisition of mailing
NGO 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 brake or premium after ailing or this type are usually handled by outside donors and
can be extremely effective in generating new members and friends of the organization. (Ibid, 1973)
C. Special events
Special events are vary 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,)
Budget is a plan express in monetary terms. As the general purpose of anon profit organization is
to provide as much service as it can with available resource.
No profit maturation: NGO’s do not operate in the objective of earning a profit consequently
NGO’s generally are exempted from federal and state income taxes. Financing by the citizenry
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Most NGO’s depend on the general population for a substantial portion of their support, because
revenues from charges for their service are not intended to cover all 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 NGO’s. Importance of
budget: the four preceding characteristics of NGO have caused their annual budget to be as
important as for governmental entities. (Leon’s, 1997)
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 carry out 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 NGO’s 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 (Larson, 2000).
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2.7.1. Expenses and losses for unrestricted funds
A NGO’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 NGO’s may be classified into two
groups, program service, supporting service.
Hospital’s is patient service records for June 1999 include. The following journal entries are
appropriate for the community Hospital. (Larson, 2000)
In addition to cash contribution, NGO’s 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 ledger account at its current fair
value, with a credit to a revenue account in unrestricted fund. (Larson, 2000)
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2.7.7. Pledges
A pledge (promise to give) is a commitment by a prospective donor to contribute a specific amount
of cash or property to a NGO’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. 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 (Larson, 2000)
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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 nonprofit organization should help the reader evaluate the organizations
ability to carry out its fiscal objectives. Some organizations may keep their books on a cash basis
throughout a fiscal period and through adjustment at the end of the period, prepare statements on
accrual basis; the audit guide allows this practice. (Wilson, 1997)
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 liabilities in order of liquidity, in order of
liquidity, classifying assets and liabilities in accordance with ARB (Accounting research Bulletin)
43, or disclosure in footnotes. (Wilson, 1997)
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CHAPTER THREE
Research methodology
3. Research design
The research design refers to the overall strategy that you choose to integrate the different
components of the study in a coherent and logical way, thereby, ensuring you will effectively
address the research problem; it constitutes the blueprint for the collection, measurement, and
analysis of data.
Research design stands for advance planning of the methods to be adopted for collecting the
relevant data and the techniques to be used in their analysis. This study is to design in a simpler
manner that enables to study the problems more easily and clearly. If the research is concerned
with finding out who, what, where, when, or how much, then the study is descriptive. If it is
concerned with learning why, that is, how one variable affect another, it is causal. Research design
used the fact that a descriptive research design is used to describe the data and for this study, the
researchers will apply descriptive characteristic about what is being studied. Descriptive research
design also enables to obtain the current information.
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When I focus only on qualitative results, I risk having a large number of outcomes with too
many details irrelevant conclusions.
When I concentrate solely on quantitative results, I often end up with very broad
conclusions without sufficient context
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REFERENCES
Edward. Lynn, Robert J. Freeman, (1998) Fund Accounting Theory and practice 7th Ed
Fess. Warren (1989), Principle Accounting 16 edition.
Freeman shoulders, (2000) Government and not-for profit organizations/ 9th Ed
Management control in Non –profit organizations/7th Ed
Larson E.J, (2000), Modern Advanced accounting 8th edition, Leon E. Hay and earl,
R. Wilson, (1997) accounting for governmental and non-profit entities 8th Ed.
Nor Walk; (1989) FASB statement No 116, Smith, the complete Guide to Non-profit
organizations 1st edition,
Waltehr B.Meigs, A.N Mosich, E.J Larson, Modern,Advanced, Accounting.
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