Do you know about the new financial reporting requirements for NGOs in Tanzania & What it will mean?

Following the issuance of the NBAA’s technical pronouncement №3 of 2020 requiring NGOs and Associations to apply International Public Sector Accounting Standards (IPSASs) effective from 1 July 2021, there is a need for management to consider the potential impact of IPSAS adoption on their organizations and start planning for the implementation to prevent last-minute surprises.

Before we go any further we should first pause & get to understand these terms from a layman perspective;

NBAA — The National Board of Accountants and Auditors is an accounting professional and regulatory body operating under the Ministry of Finance and Economic Affairs, the sole body to certify accountants in Tanzania. It began operating on 15 January 1973.

NGO — A non-governmental organization (NGO) is a non-profit group that functions independently of any government. NGOs, sometimes called civil societies, are organized on the community, national and international levels to serve a social or political goal such as humanitarian causes or the environment.

IPSAS — International Public Sector Accounting Standards are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements.

IFRS — International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board.

After understanding, the foundations of this read let's get into it by making one thing very clear, the underlying principles for the preparation & presentation of financial statements are still prevailing although changes arise mostly in the following area;

Issue of service potential — in IFRS part of the recognition criteria of an asset is that should be recognized when there is potential for future economic benefits to flow to the one who posses ownership of that asset while IPSAS consideration is not the ability to demonstrate economic benefits but the ability to provide service cause the objective not profit-oriented. ie Mfugale & Kijazi interchange no one pays to enjoy the benefits directly, therefore there is no economic benefit rather than there is the ability to use the service.

Issue of exchange & non-exchange transaction — in the private sector all transactions that are carried out are exchange transactions, you provide a service or goods in return you get the value that equals to goods or services rendered but in the public sector, there are transactions with no direct value. ie payment of taxes is just a legislative requirement to every income earner.

Reporting of budgets vs actual — as the recent Amendment Regulations requires NGOs to submit to the Registrar of NGOs funding contracts or agreements whose value exceeds Tanzanian Shillings Twenty Million (TZS. 20,000,000/-) entered into between the NGOs and donors or persons who provide grants to the NGO for purposes of obtaining approval from the Registrar of NGOs. The act encourages the increase of accountability as the budget vs actual basis of the analysis is taken into consideration.

Impairment of non-cash generating assets — Since the IPSAS considers the service potential of an asset, these standards recognize that a major part of the public sector entity’s assets may actually be non-cash generating; thus, the IPSAS also provide guidance on how to impair such assets. On the other hand, the impairment provisions under IFRS consider that assets subject to impairment testing are cash-generating ones.

Recognition of revenue from government (GRANT) — there are areas of difference in recognizing government grants in books of account which due to technicalities, I wouldn’t want to get into that now.

Other areas to be on a look at;

• The requirement to report quarterly. NGOs are now be required to file quarterly reports to the Registrar of NGOs in Tanzania. The report will indicate the operations of the NGO including a summary of activities or projects implemented by the NGO in each quarter. The Amendment Regulations has issued a specific format for this exercise.
• Required formatting structure of Constitution of an NGO. Under Regulation 22, all NGOs are now required to have a particular standard constitution substantially in the format set out in the First Schedule to the Amendment Regulations. This means that such a constitution would need to be prepared and submitted as part of the issuance of a new certification process.

Conclusion: There will always be a convergency between IPSAS & IFRS, however, it is worth considering there will always be a difference as IPSAS focuses on general-purpose accounting & sharing information with the general public and IFRS focuses on the private sector, someone might conclude that reporting for NGO’s will never feel the same again.

Disclaimer — This publication contains general information only, and it is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

Prepared by — Carlos Mutoka, Tax and Accounting Consultant

Mob:+255755194548, For Inquiries — carloskmutoka@gmail.com