Accounting Cycle at Rota - Case Study Example

Accounting Cycle at Rota of the of the Introduction This study will be centered towards analyzing accounting process followed in ROTA or Reach Out to Asia organization in Qatar. ROTA is a non-profit organization which provides secondary and primary education to children by empowering local communities. This organization was formed in 2005 and portrays a world where all young people are given equal educational opportunities. Reach Out to Asia in present scenario works in coordination with volunteers, local communities and partners to ensure that people who are highly affected by any form of crisis in Asia or across the globe is given relevant access to superior quality education. It operates under Qatar Foundation of Education, Science and Community Development as a chartered, non-profit organization. ROTA fulfils its objectives through ROTAsia handling programs in Middle East and Asia, and ROTAQ that handles widespread activities in Qatar. In this particular study, accounting cycle of ROTA will be analyzed and it shall encompass accounting standards followed by the firm, accounting books being maintained and accounting process which has been implemented in the system. Discussion Reason behind ROTA being non-profit firm Public sector and non-profit organization possess certain distinct characteristics. For instance non-profit firms majorly utilize surplus revenue in order to achieve their desirable goals. They do not distribute their overall revenue in the form of dividends or profits. This is the area where public sector firm differs from non-profit organization. In public sector organizations, revenue is largely distributed amongst stakeholders and is considered as a part of business operations. Non-profit firms are permitted to obtain surplus revenues but it needs to be retained for expansion plans or self-preservation (Alvarado, 2000). ROTA can be associated with this characteristic of non-profit organizations. In this particular firm funds are generated with the support of Qatar Foundation of Education, Science and Community Development but it is then distributed amongst wide scale of educational activities to be hosted in Qatar, Middle East and Asia. Another important aspect of non-profit organization is they mostly do not have paid staff. Executives or volunteers employed by these firms work without any form of compensation. This is observed in organizational structure of ROTA where unpaid volunteers, partners and local communities collaboratively work to provide people with required educational facilities who has been affected by crisis in Asia or any region across the globe. When an organization is designated as non-profit it does not mean that the firm is not intending to secure profit margins. On the contrary, it indicates there are no owners of the firm and funds realized during operational procedure of the firm will not meet individual interest of owners. ROTA is not operated under any such owner; there is a chairperson and a team of volunteers who actively participate in order to reach out to local communities. Hence this firm can be stated as a non-profit organization. ROTA comprises of association of members and is itself a member of Qatar Foundation. Donations play a significant role in non-profit firms in comparison to public sector firms. ROTA’s global operations are based on such donations and hence it can be stated as a non-profit organization. Type of accounting process, books and standards followed ROTA has its financial statements based on IASB or International Accounting Standards. Government of Qatar has incorporated this standard into the system in order to facilitate standardized approach. There are relevant accounting standards adopted by non-profit organizations. However certain modifications are done in the financial statement standard to enable transparency in the entire operational procedure. In the financial statement presentation an additional paragraph is included stating there is only a single purpose of these statements. On the other hand, if an organization prepares a different set of statements then it is essential for them to refer to main purpose of financial statements. For this kind of amendment, a firm which desires to develop unconsolidated and consolidated financial statements need to consider which set is aligned with general purpose statements. Goodwill and intangible assets as per section 3064 of international accounting standards are an essential component of accounting process of ROTA (REACH OUT TO ASIA, 2014). Non-profit firms often indulge into advertising their services so as to spread awareness amongst public. These forms of expenses which are related to their assets are generally included in goodwill and intangible asset section. Intangible assets and goodwill can be associated with developmental costs of non-profit organizations. These costs comprise of expenditure related to concerts or series of plays, fundraising events, gallery exhibitions and campaigns. There have been other types of costs highlighted in this section like administrative, selling and overhead expenditures. In the accounting standards of non-profit firms there is a paragraph for subsequent events that clarify the meaning of financial statement completion. Financial statements are regarded to be complete when financial statement sets along with note disclosures has been created, all final entries has been reflected in the statements, no further changes are expected or planned, and these statements has been approved in terms of being aligned with organizational process (Edwards & Hulme, 2002). Section 3856 of international accounting standards highlight the financial instruments included by non-profit organization. Hedge accounting is a common practice witnessed in majority large organizations and even is applicable for non-profit firms. This kind of accounting states that a firm maintains additional resource so as to handle effectively any form of additional risks. Hedge accounting has gained importance in non-profit sector since many situations arise when firms are not able to meet set objectives due to lack of funds. Reporting related and controlled entities of non-profit organization is established in section 4450 of accounting standards. Financial statements prepared on the basis of accounting standards in case of non-profit firms encompass high quality and standardized information. This type of accounting practice is transparent and comparable for all users over different periods. It even provides an appropriate starting point for such firms in context of accounting on basis of these set standards. On the other hand, it can be generated efficiently without the cost exceeding user’s benefits. As per these standards followed by ROTA, transitional issues will differ across firms as it is dependent on nature of activities performed by these non-profit organizations. Stakeholders have a significant role in accounting practices adopted by firm. Their opinion is highly valuable while making any specific amendments. In current scenario, there have been certain changes made in financial statement presentation of non-profit firms. For instance it has been amended to eradicate material associated with interim financial statements and that of comprehensive income, which was previously incorporated as net assets. ROTA has implemented internal audit as its accounting process. Internal auditing is consulting, objective assurance and independent activity designed to improve organizational operations and value addition. This approach helps ROTA to accomplish objectives by bringing disciplined and systematic flow to improve and evaluate risk management, governance and control process. Internal auditing can be stated as a catalyst for improving overall organizational procedure and assess or analyze business data and process. This approach with commitment to accountability and integrity provides value to senior management and governing bodies in the form of independent advice. There are professionals who have been employed by the non-profit firm such as internal auditors and they are solely responsible for performing internal auditing activity. There are certain core objectives of internal auditing process like efficiency and effectiveness of operations, reliability of management and financial reporting, compliance with regulations and laws, and safeguarding of assets. Internal audit reports framed at ROTA is always aligned with 5 C’s such as condition or kind of problem being identified, criteria such as the extent of meeting company policies or standards, cause or the reason behind occurrence of a problem, and corrective action or decisions needed to be taken by management. This form of report helps the organization to analyze their loopholes and take effective actions to resolve them. On the contrary, through such auditing report one can identify the areas where excess of funds is been allocated and conduct re-allocation process so as to ensure equal distribution of funds (Grobman, 2008). It can be stated that non-profit firms like ROTA utilizes accounting books like revenue-expenditure statements to denote their funds generation and expenditure. Surplus funds are obtained by the firm through donations, charity, etc., and it then allocates funds to respective departments. This kind of cash flow statement helps to outline the current status of the firm, beneficial both for governing bodies as well as stakeholders. Conclusion As per this analytical study, ROTA, a non-profit organization has been able to implement best accounting practices in its operational system. Since the firm is located in Qatar it has adopted International Accounting Standards. There are certain principles followed by the organization as per these standards. However the main focus is on clearly stating revenues gained and expenditure incurred. This in turn helps to maintain transparency within the system as well as in society. Revenue-expenditure statements developed by ROTA make its widespread global operations simpler and effective. The firm even has employed internal auditors to determine whether the set company policies are being maintained or not. In overall context these auditors play a vital role in highlighting success and failure of organizational objectives. Accounting cycle of such non-profit firms is relatively complicated since it encompasses wide scale of elements. Reference Alvarado, E. (2000). Non-profit or not-for-profit -- Which are you? Non-profit world, Vol.18 (6). Edwards, M. & Hulme, D. (2002). The earthscan reader on NGO management. London: Earthscan Publications Ltd. 2002. Grobman, G. (2008). The non-profit handbook: Everything you need to know to start and run your non-profit organization (Paperback). Harrisburg: White Hat Communications. REACH OUT TO ASIA. (2014). About Us. Retrieved from: http://www.reachouttoasia.org/en/aboutus . Read More