With the effects of the COVID-19 pandemic taking centre stage in the world at the moment, there has been an increase in Not-for-Profit Organisations ("NFPOs" or "Not-forProfit") springing up to assist the government with social services. These organisations attract huge funds from various external sources to support the disadvantaged and the vulnerables in the society. While their aim is not to make profit and their activities are applauded by the society, these organisations are prone to public scrutiny with respect to accountability and transparency in their operations. Accountability and transparency can be achieved through proper accounting and financial reporting.

This article discusses the accounting and reporting framework required for not-for-profit organisations to ensure accountability to the diverse stakeholders of NFPOs

Not-for-Profit Organisations

A Not-for-Profit Organisation is an "entity without transferable ownership interests, organized and operated exclusively for social, educational, professional, religious, health, charitable or any other not-for-profit purpose. Its members, contributors and other resource providers do not, in such capacity, expect pecuniary return directly from the organisation".

NFPOs are entities that are formed for the promotion of public good and societal advancement and do not have shares and shareholders. Any surplus arising from their activities are not distributed to their owners. These organisations are registered as "Companies Limited by Guarantee" in line with the provisions of the Companies and Allied Matters Act (CAMA) 2020.

In the determination of the accounting and financial reporting framework, it is important to note that stakeholders have diverse information needs. Some may require information to assess the impacts of their donations and contributions on the set objectives of the organisation, while others require financial reports.

Since accounting and financial reporting play an important role in accountability and transparency, NFPOs should present in their financial statements, both financial and non-financial information to ensure all stakeholders' needs are satisfied.

Accounting and Financial Reporting Framework for Not-For-Profit Organisations

International Financial Reporting Standards (IFRS) have been developed for the financial reporting needs of profit-oriented entities. However, there are currently no equivalent standards for NFPOs. Many NFPOs have unique transactions and economic events that are different from those found in the private or public sectors. Also, the financial reporting needs of stakeholders and users of NFPOs' financial information are also different from those in private or public sectors. Financial reporting issues for NFPOs have been subjects of debate globally for many years.

A number of jurisdictions have developed guidances in order to respond to this gap. There are ongoing efforts to establish NFPO-specific standards. Currently, The Chartered Institute of Public Finance and Accountancy (CIPFA) is working with Humentum on a project titled "International Financial Reporting for Non-Profit Organizations (IFR4NPO)".

The project is a five-year initiative designed to address the existing financial reporting gaps with the aim of developing the world's first internationally applicable financial reporting guidance for the non-profit sector.

While we await the outcome of IFR4NPO project, a number of the guidances that have been issued require NFPOs to demonstrate transparency, accountability, and provide information that will satisfy the needs of diverse stakeholders. Based on the different guidances, there is convergence in the form and contents of the financial statements of NFPOs. Specifically, the financial statements of NFPOs should include:

  1. Statement of accounting policies;
  2. Statement of financial position (also known as balance sheet);
  3. Statement of activities (otherwise known as income and expenditure);
  4. Statement of changes in net assets;
  5. Statement of cash flows; and
  6. Notes to the account.

Statement of accounting policies

An NFPO should state all its significant accounting policies used in the preparation of the financial statements.

Statement of financial position

The statement of financial position should report the following:

  1. Total assets;
  2. Total liabilities;
  3. Total net assets;
  4. Total net assets with donor restrictions; and
  5. Total net assets without donor restrictions.

Assets and liabilities are sequenced in the statement of financial position based on their relative liquidity.

Statement of activities

The statement of activities is otherwise known as income and expenditure statement, and many NFPOs produce a variety of versions of this report calling it various names, such as budget report, profit and loss, income and expenditure etc. The statement of financial activities (SOA) shows the NFPO's income and expenses for a specific period of time. Specifically, SOAs should report the following:

  1. The effects of transactions that change the nature (with or without donor restrictions) and amount of net assets;
  2. How the NFPOs use up their resources in facilitating programs, activities and other services.

An analysis of expenses by nature and function shall be aggregated and reported on the face of the SOA, or a separate statement. The analysis should classify expenses into:

  1. Program expenses;
  2. Supporting expenses (general and fundraising expenses).

The results of the year's activities result in a change to the NFPO's net assets, thus the SOA and the statement of financial position reports are related.

In the determination of the accounting and financial reporting framework, it is important to note that stakeholders have diverse information needs. Some may require information to assess the impacts of their donations and contributions on the set objectives of the organisation, while others require financial reports.

Statement of changes in net assets

This statement should show the reconciliation on net assets, showing the movement between net assets with donor restrictions and net assets without donor restrictions.

Statement of cash flows

This statement should provide information about the use of cash by the NFPO in carrying out its operating, investing and financing activities for a period. It also assists stakeholders to assess how the management of the NFPO has discharged its stewardship responsibilities in the use of the resources available.

The notes to the financial statements of an NFPO should provide explanatory notes and other non-financial information to satisfy the needs of stakeholders.

Taxation in Nigeria and Not-for-Profit Organisations

In Nigeria, NFPOs are exempted from paying Companies Income Tax in accordance with Section 23 (1) of the Companies Income Tax Act (CITA) Cap C21, LFN 2004. However, NFPOs are expected to file tax returns even though they are exempted from Companies Income Tax.

NFPOs are liable to Value Added Tax (VAT) on goods and services, except the goods and services are VAT exempt or zero-rated. Similarly, NFPOs are also not exempted from obligations relating to withholding taxes deducted from vendor's invoices.

Not all NFPOs have volunteers. Thus, employees of NFPOs receive remuneration from which pay-as-you-earn (PAYE) tax is deducted and remitted to the appropriate tax authority.


While we await the outcome of IFR4NPO, NFPOs in Nigeria should adopt the guidances provided by the Financial Reporting Council of Nigeria in its preparation of financial statements. More importantly, NFPOs should move away from the traditional preparation of accounts on cash basis and adopt an accrual basis of accounting. NFPOs' financial statements should include all the components of financial statements as highlighted above. The presentation of financial statements as outlined above will assist in proper accounting and disclosures that will provide answers to all stakeholders' questions and concerns on accountability of resources and disclosures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.