Developing International Financial Reporting Guidance for Non-Profit Organisations.


Having studied for professional exams and become proficient in IFRS, it can be disconcerting to then work in an NGO and discover that a significant percentage of that knowledge is apparently not applicable.

There are five inter-related challenges relating to financial reporting for NPOs in countries like Uganda.

  1. Some jurisdictions (eg UK, USA, Canada, New Zealand etc) have their own national accounting and financial reporting standards for NPOs. A country office of an International NGO may need to accommodate the requirements of its Head Quarters. The existing national-level accounting standard frameworks for NPOs differ substantially from each other, with no historic efforts to consult or converge around an agreed approach.
  2. Most countries in the world, including Uganda, do not have their own NPO standard, so they require or allow the use of international standards designed for other sectors, such as IFRS for profit-making entities or IPSAS for public/government entities.  There is no international accounting standard for NPOs.
  3. IFRS do not meet the needs of NPO stakeholders, and are simply silent on a number of significant aspects of non-profit accounting, such as recognition of grant income and capital grants, how to present fund accounting on the financial statements, donations in kind, valuation and impairment of assets or inventory that have a social rather than economic value, and what should be included in the narrative report or management commentary when the primary objectives are social rather than financial.
  4. Since donors are often the most influential users of an NPO’s financial information, many have filled this gap with their own formats and requirements, resulting in a vast array of reporting regimes, many of which do not conform to IFRS principles.  This causes a significant burden on NPOs as they comply with complex cost allocation and reporting mechanisms.
  5. Many NPOs prepare their accounts on a cash or modified cash basis, sometimes in order to meet donor requirements, and sometimes due to capacity constraints, but there is no international standard for cash basis or modified cash basis accounting.

The net effect of these factors, when considered globally, is that NPO financial statements lack consistency or clarity, and fundamentally do not meet users’ needs. This impacts on due diligence, trust, and the flow of funds.

At the IFR4NPO project, we are undertaking the ambitious task of developing Internationally applicable Financial Reporting guidance for Non-Profit-Organisations.  Led by Humentum and the Chartered Institute of Public Finance and Accountancy, the initiative was launched in July 2019 with seed funding from Open Society Foundations and the Ford Foundation.

The key output from the project will be Guidance that focuses on sector-specific accounting issues.

The goal is that this Guidance will be accepted as best practice for general purpose financial reports by major international donors and auditors.  It will also be adopted by ever-increasing numbers of national jurisdictions such that NPOs may be allowed or required to apply the Guidance. For those countries that already have existing standards, the Guidance will provide something to converge towards over time, much as IFRS does now. 

The outcome will be improved quality and alignment of NPO reports, that better meet users’ needs for the assessment of financial health and performance.

The question we must rightly ask is whether such a long term, the structural investment project is really a priority when we are dealing with COVID-19? It is said that the best time to plant a tree is 10 years ago; the same is true of this Guidance.  

As reported in Devex, in response to the flight restrictions, international organisations are scrambling to secure local partners, a boost to the long-standing trend toward localisation. If organisations could demonstrate their capacity to absorb and manage funds with clear and consistent audited general purpose financial statements, this would greatly improve and ease the due diligence process.

It seems like COVID-19 is overwhelming, but it will pass, and the other on-going crises will return to our news feeds climate change, hunger, poverty, environmental degradation, conflicts, children at risk. Trusted and informative financial reporting is an enabling factor to strengthen civil society resilience, so we believe this project is more important than ever.

Although the project team is only five people, we have support from influential advisors on a voluntary basis:

  • The project’s Technical Advisory Group comprises national standard setters representing every continent, including members from PAFA, Sierra Leone and Rwanda (for East Africa), and an observer from the International Accounting Standards Board.
  • The project’s Practitioner Advisory Group includes a range of relevant stakeholders such as NPOs, auditors and donors, including three from Africa.
  • The project is also establishing a Donor Reference Group to ensure that their needs are understood and met, and to establish a consensus of support for the approach.
  • The project has identified 21 strategic target countries, each influential in their region, and is appointing Country Champions to support the engagement of stakeholders.

Without the luxury of unlimited time or resources, the guidance this project produces will be for accrual basis accounts, catering primarily to the needs of small, medium and larger entities rather than micro-sized.  However, the Guidance will develop principles that will also be of use and relevance to NPOs preparing general purpose financial reports on cash or modified cash basis.
One unique aspect of this project is the opportunity for stakeholders all over the world to contribute to its design.  Please visit and register for updates so your voice can be heard. The project is launching a new website and online forum in May, and currently preparing a consultation paper for issue in early 2021, as the first of three phases in the rigorous development process.

We are delighted that ICPAU has agreed to take on the role of Uganda Country Champion, so do look out for invitations to webinars and other events to participate and learn more in due course.
This is a once-in-a-generation opportunity to shape the future of NPO financial reporting, to bring consistency, clarity, transparency and credibility to this vital sector, globally.

By: Samantha Musoke
Project Director IFR4NPO at Humentum | |

Samantha Musoke is a UK Chartered Accountant who moved to Uganda in 2001. She has held a variety of roles in and for the NPO sector: auditor, trainer, board member, Financial Advisor, and CFO.  In 2017, Sam became the Regional Director, East Africa for Humentum, and was appointed Project Director when the IFR4NPO initiative was launched in July 2019.  She lives with her family in Makindye, Kampala.


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