Nonprofit Organisations (NPO) or what is mostly referred to as NGOs are defined differently in various jurisdictions and sometimes expectations of their several stakeholders diverge.

For example, here in Rwanda, an international NGOs is an organisation that is established in accordance with foreign laws and whose objective relates to serving in the public interest.

Similarly, the role of such an NGO be it local or international should supplement the government to initiate and or implement new solutions with an aim of dealing with diverse problems across all sectors of the country such as health, economic sector, education, peacebuilding, environmental protection, services among many others.

While in Rwanda such organisations are regulated, merely this activity revolves around registering and the granting of legal personality whilst monitoring their service delivery including compliance with the laws among other regulatory roles - similar to most other jurisdictions in Africa; the subjectivity to a specific financial reporting requirements/guidance appears nonexistent.

Lack of a common financial reporting standard therefore instigates numerous issues including the confusion it creates for even auditors to determine "a true and fair view” without an applicable framework to compare with.

Other concerns may include inconsistent financial reports; high costs resulting from a need to prepare different reports for different stakeholders; reduced transparency – due to lack of clarity and consistency; and the perceived enhanced double funding fraud.

The International Financial Reporting for Non-Profit Organisations (IFR4NPO) project is developing a guidance regarding the development of an internationally applicable guidance for how NPOs prepare their annual financial statements, which can be adopted by any country if they choose to.

I am sure that this would be a great initiative for local and international NPOs operating in Rwanda to adopt this guidance once ready, similar to what their counterparts in both the private and public sector have done – adopting and implementing IFRS and IPSAS respectively.

But just before either adapting or adopting the guidance, all stakeholders including NPOs themselves, funders, regulators and auditors should participate in this process especially at the consultation level to ensure that the cultural context is well reflected whilst providing an opportunity to everyone to shape the future – each stakeholder’s voice and perspectives are fundamental in the development process.

To cite just a few examples emanating from Covid-19 impact, several NPOs appear to lack sustainability including limited emergency funds to deal with the current as well as the uncertain effects of the pandemic.

While this may appear cross-cutting to several organisations; at least in the counterpart sector, there has been an emergency fund to cater for businesses that have been strongly hit - which is a different case when it comes to the NPO sector.

Since this sector largely depends on aid and grants to finance their operations, it may not be easy for them to survive as it may require that they explore ways of obtaining new funding opportunities.

This could be a dilemma in itself when the funder has also been affected by the pandemic unless if there are, for example protective measures for may be local NGOs to be funded directly by either the government or any other donor to directly deal with mitigating the impact of Covid-19 to the citizenry.

Effective survival therefore would require, among other initiatives, heightened collaboration with the government and other funders – be it within the country, regionally and beyond; proper accountability and transparency – as a result of well-prepared financial statements that are more transparent, more credible and easier to prepare; well-developed risk assessment strategies including response actions.

It therefore becomes paramount that a common international reporting standard similar to what we already have for the private sector – International Financial Reporting Standards (IFRS) and the public sector – International Public Sector Accounting Standards (IPSAS) is developed for the NPO sector - bidding at contributing towards the creation of a more resilient and accountable sector able to attract, generate and utilize funds to achieve positive social good.

It is important to note that there is currently no common international accounting standard for non-profit organizations (NPOs) globally - it is only a few funding organizations that have tried to develop their own reporting requirements; other NPOs financial reports are often prepared under private sector, public sector or a mixture of both standards.

Developing and implementing a common Guidance will greatly contribute to enhanced accountability and decision making beneficial to all stakeholders including donors and governments where such NPOs operate. Other objectives of the Project also include the addressing of specific NPO issues to promote comparability of NPO financial reports and improving the quality, transparency and credibility of NPO financial reports. Preparing accrual based financial reports could be one of the quicker means for additional funding due to heightened trust and confidence of the NPO activities.

More so, the other important outcome from this Project that has never existed before, is an establishment of a global community of stakeholders able to engage and collaborate to solve sector-wide issues; For NPOs applying the Guidance, it means they will be better able to demonstrate their capacity and attract funds, as well as supporting the provision of decision useful information for governance and management. 

For funders it contributes to better and more efficient due diligence, which is a win for NPOs too.  And having clear guidance simplifies and improves the value of audit assurance.

Ultimately, it is believed that the Guidance will contribute to a more resilient and accountable sector that is better able to attract, generate and utilize funds to achieve positive social good.

Please do your part by contributing to the Consultation Paper as the initial step in developing a common Guidance for NPOs by visiting www.ifr4npo.org.

The writer is the Director, Professional Development Services at the Institute of Certified Public Accountants of Rwanda (ICPAR).