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Statement of Accounting Policies and Notes to Financial Statement for NPOs

Statement of Accounting Policies and Notes to Financial Statements are an integral element of the financial statements.  All the accounting policies, assumptions, estimates, and caveats used in the preparation of the financial statements are part of this document. As such, it helps users to read the financial statement properly.

The objective is to disclose the accounting events that cannot be displayed in the body of the financial statements that exert significant influence or are necessary for an understanding of the financial statements. It also helps users in predicting the entity's future cash flows and, in particular, their timing and certainty.

What does it normally contain?
  • Introduction of the non-profit organization (NPO) and its activities
  • The accounting policies adopted by non-profit organizations (including revenue recognition criteria for assets, liabilities, income, and expenses)
  • Nature of the organization
  • The contents of the cash and cash equivalents
  • Highlights of the debt that must be repaid in cash
  • The contents of in-kind donations
  • Collateral received or provided
  • Related parties and details of the contents of important transactions with them;
  • The contents of the court cases at the end of the fiscal year and cases currently in progress, litigation amount, etc.
  • Other disclosure that is relevant to the matters specified in the general description of the non-profit organization accounting standards and with material amount;
Is there anything special for NPO? NPO should disclose:
  • The accounting policy adopted for restricted funds and unrestricted funds, including the methods of presentation in the financial statements
  • The nature and extent of restricted contributions recognized in the financial statements, and an indication of other forms of assistance from which the organization has directly benefited; and
  • Unfulfilled conditions and contingencies attaching to assistance that has been recognized.
Are there any Optional Disclosures? In order to enhance the quality of the financial statements, NPOs may add additional disclosures as necessary. One example can be financial information based on the project themes or health areas or department or location etc.

Is there a format for us to adapt? Yes, we have tried our best to incorporate all the information that might be part of the document that will enhance the usefulness of the financial statements. You can take these as a minimum information requirement and can add your own to provide additional disclosure to enrich the quality of the financial statement.

Who should prepare the document? It is the primary responsibility of the management to prepare such a document however, auditors might also suggest additional disclosure for enhancing the quality.
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