Accounting Issues of Not-for-Profit Entities in Australia - Coursework Example

Running Head: ACCOUNTING ISSUES OF NOT-FOR-PROFIT ENTITIES IN AUSTRALIA A Paper in Accounting Issues of Not-for-Profit Entities in Australia In APAStyle Name University Introduction The not-for-profit entities can be considered as important participants in the economy of Australia. Organizations that may be private or public that are included in the set criteria in the said country are designated as not-for-profit entities. Basically one of the main motivations of such companies and organizations for operation is outside the realm of profitability and dissemination of surpluses cannot be exhibited. Other distinctive characteristics of the said entities are the exemption from income tax and other similar taxes and the lack of processes such as the transfer of ownership (Australian Bureau of Statistics, 2002; 2006). The influence of the not-for-profit entities in the economy of Australia can be attributed to the participation of the members of the said sector specifically in employment and GDP. For public entities employment contribution is approximately 1.6 million while 600,000 people are being employed by the private entities. In terms of GDP, 4.2 percent is being contributed by public groups and 4.7 percent is for the private groups (Australian Bureau of Statistics, 2002; 2006). The main focus of the research undertaken is related to the development of new accounting rules and definition related to the not-for-for profit entities. Basically, the past few years had paved the way for the modification of accounting concepts specifically related to not-for-profit entities. The said concepts are then the main subject of study in the research that had been undertaken. Accounting Issues Related to Not-for-Profit Entities There are different views that are needed to be taken into consideration. One of the said views includes that on the basis of the different authorities superseding the said field. One is the Australian Accounting Standards Board (AASB) which is mainly focused on the development of quality and standards specifically in financial reporting and accounting. The most important consideration is in relation to the actions that are being undertaken to be able to improve the services of the said entities. Aside from the issues that are related to the different groups that are responsible for authorization and standardization of the rules on non-profitability, other issues are mainly related to the accounting processes specifically due to the fact that sales cannot be considered as a source contributing to the operational cost that can be incurred in the maintenance of the said entities. Due to the fact that not-for-profit entities are recognized for having important roles in the economy of a country such as Australia, it can be considered that the accounting processes that are making them work are designed specifically to meet their needs and in turn the needs of the economy such as provision of employment. In relation to the establishment of such accounting procedures and standards, it is a common notion that the different organizations considered as the authorities in the said field continuously develop such standards and rules of operation. Basically, to be able to determine the required rules, it is needed to be able to determine the general rules which in the case of accounting in not-for-profit organization. The GAAP or generally accepted accounting principles can be considered as the main basis and standard in financial accounting. If the rules for not-for-profit organization are the main focus there are different rules of specificity mainly on the basis of the fact that there are major differences especially in relation to the sources of income. There are different rules that are employed such as principles of regularity, sincerity, permanence of methods, non-compensation, prudence, continuity and periodicity (Ruppel, 2003). The differences in the application of accounting principles in not-for-profit entities can be related in certain aspects of the operation such as assets, liabilities, revenues, and expenses which are clearly defined in the financial statements. Due to the fact that the main focus of the said entities can be related to the fulfillment of some socially connected objectives, the common sources of income are not present (Ruppel, 2003). Budget Issues The budget related issues are included in one of the main concerns in the operation of the not-for-profit entities. The initial aspect of the budget is planning. Upon the establishment of the plans that are commonly based on a fiscal period, it can be considered as the main guiding schedule in the operation of the company. This is essential specifically due to the fact that the financial records and accounting are based on the said phase. In addition, can be considered as one of the determinants of the performance of the different units and components of the system thus considered as the management tool for maintenance and improvement of the entire system (Anthony and Young, 1994). On the basis of the main definition of not-for-profit entities, sales are not considered as the sources of the finances. Included in the main sources are grants. For that matter, issues in the achievement of funds and grants are included in the main focus in terms of budget planning. Efficiency in the use of funds is included in the possible problems in the operation of not-for-profit entities, thus, allocation of funds in different programs is one of the possible methods and techniques to be able serve a larger group of beneficiaries (Anthony and Young, 1994). Asset Management Issues Another aspect of the not-for-profit entity is in relation to the management and acquisition of the assets. The main difference can be considered to focus on the liquid assets that are most efficiently used in terms of propelling the different programs. Basically, the ideal asset management can be described as having the capability to be able to balance out the liabilities such as debts with the funds available (Anthony & Young, 1994; Horngren, Foster and Datar, 1997; Ruppel, 2003). Although the profits from sales are not allowed in not-for-profit entities, investments can be undertaken to be able to provide for additional costs that can be incurred by the entity. In addition, such profits are also segregated to the programs at hand. Operations and processes related to the management of assets are identifiable to two major processes such as the cash flow development and the administration of the endowments. The issues involved in the development of the cash flows can be considered as a fundamental issue since finances is a major factor in the operation of the organization. The determination of the cash flows is to ensure that the entity has enough funds to be able to work and operate properly. To be able to ensure records for analysis and management study, accrual basis financial statement and other types can be made which is in turn processed on a periodic manner to present cyclical and seasonal changes (Anthony & Young, 1994; Horngren, Foster and Datar, 1997; Ruppel, 2003). In the said processes, it is important to consider that the income commonly and methodically dictates the expenditures. Problems wherein there is shortage of funds or expenditures cannot be supplemented, control of expenses can be undertaken. Another issue is in relation to endowment. Basically, the rules of accounting that are related to endowment can be considered essential in the management of assets on the basis of the fact that it limits and can often decide the proliferation and use of the assets. The rule often leads to confusion thus new concepts are often developed. One of the rules in relation to the management of endowments is the determination of the original asset and then considering additional acquisitions as income (Anthony & Young, 1994; Horngren, Foster and Datar, 1997; Ruppel, 2003). Not-for-Profit Entity in Australia The importance of NFP entities in Australia can be viewed through the different governing bodies that are present to be able to provide assistance, establish standards and set goals for the different organizations. Similar issues can be encountered in terms of operation but the main difference is the prioritization of the needs of such sector over other groups in the society. It can then be considered that provision of funds is relatively common, thus, NFP entities can accomplish more goals and functions (Kilcullen, Hancock and Izan, 2006) The main priorities of NFP entities in Australia can be defined on different aspects. The primary goal is to follow legal terms of operation and engagement. The next goal is to gather up funds and undertaking of plans. The next goal is in relation to the maintenance of the operation and characteristics as not-for-profit entities, thus, no sales can be undertaken (Kilcullen, Hancock and Izan, 2006). Conclusion The accounting issues in NFP entities are mainly bases on the budgeting and management of assets. For that matter, the issues are generally related to the operational processes related to the said aspects. Accounting in NFP entities can be considered as a specialized method based on the fact that the sources of funds, the management of assets and the goals are based experiences behaving in a different manner. Although this is the case, there are countries such as Australia wherein NFP entities are the major participants in the economy due to the high sources of grants and funds. This can then be observed in the laws and governing rule which commonly present provisions targeting application in NFP entities. Reference: Anthony, R. N. and Young, D. W. (1994). Management Control in Not-for-profit Organizations. Boston, MA: Richard D. Irwin, Inc. Australian Bureau of Statistics. (2002). Non-profit Institutions Satellite Account. ABS. Australian Bureau of Statistics. (2006). Australian System of National Accounts 2005-06. ABS. Horngren, C. T., Foster, G. and Datar, S. M. (1997) Cost Accounting: A Managerial Emphasis. NJ: Prentice Hall. IASB (2006). Conceptual Framework. Retrieved July 25, 2008, from http://www.iasplus.com/agenda/framework-g.htm Kilcullen, L., Hancock, P. and Izan, H. (2006) Defining a Not-for-Profit Entity in Australia – The Accounting Perspective. Report for CPA Australia Centre of Excellence for Financial Reporting and Governance. Ruppel, W. (2003) Not-for-Profit Accounting Made Easy. John Wiley and Sons. Read More