Special Supplement

NPOs need more professional accountants to ensure transparency: Azahar Ali

Published : 09 Nov 2020 06:59 PM | Updated : 10 Nov 2020 01:30 PM

Azahar Ali, FCA has been appointed as Country Champion from Bangladesh for IFR4NPO project. He has been working with Concern Worldwide, Bangladesh as Country Financial Controller and Assistant Country Director. He is a fellow member of Institute of Chartered Accountants of Bangladesh (ICAB). In an exclusive interview with Bangladesh Post) on the occasion of International Accounting Day-2020, Azahar Ali (A. Ali) talked about IFR4NPO, the role of professional accountants in Non-Profit Organization (NPO), his plan to deliver the role of Country Champion, and many other relevant issues. Following is the full version of the interview:

BP: We know you have been recently assigned as Country Champion for IFR4NPO project, can you tell us briefly about IFR4NPO project? 

A. Ali: IFR4NPO is a global initiative to develop the world’s first internationally applicable Financial Reporting guidance for Non-Profit-Organizations (NPOs). This will improve the clarity and consistency of NPO financial reports, resulting in greater credibility and trust in the not-for-profit sector globally. The guidance will apply to the unique sector-specific aspects of the annual general purpose financial reports, considering accounting issues as well as narrative reports that accompany financial statements. More than 87 countries have already been involved with this initiative from 10 regions such as Asia, Australia & Oceania, East & Central Africa, Eastern Europe & Central Asia, Europe, Latin America & Caribbean, Middle East & North Africa, North America, West Africa and Southern Africa.

BP: Generally, we are familiar with NGO terms but here it has been referred NPO. What type of organization is covered under NPO and also if you briefly tell us about the activities of NPO?

A. Ali: Yes, you are right. We are familiar with the word of Non-Government Organization (NGO) in Bangladesh. Here NPO means all Non-Profit Organization. If I try to explain simply then I can say that a Non-profit Organization (NPO) is not a business entity. The objective of NPO is not to make the profit for the organization. The main objective of NPO is to help the people to address the humanitarian and development and social needs in the world. Basically, an NPO works to build a better and sustainable world. It could be various types of organization such as University, Charitable Institute, Trust, Foundation, Religious Institute, Research Institute, Society, Social Business, Microfinance Institute etc. There are no individual or group of investors who can take and make money from the organization for their benefit from NPO. The key aspects of NPO are accountability, trustworthiness, honesty, and openness to every person who has invested time, money, and faith into the organization. Public confidence is very important for an NPO to become a sustainable organization and transparency in NPO’s financial reporting is a key factor to earn confidence. 

BP: We know you have been working with Concern Worldwide, would please let us know about the activities of Concern Worldwide.

A. Ali: First, I would say I feel proud to be a part Concern family. I express my wholehearted gratitude to Concern Worldwide for supporting me to take this important role. The value, culture, transparency and accountability of this organization are an example for the NPO sector. The vision of Concern Worldwide is of a world free from poverty, fear and oppression. A world where everyone has access to the opportunities, they need to live a long, healthy and creative life. A world where everyone is treated with dignity and respect. Concern Worldwide is a non-governmental, international, humanitarian organization dedicated to the reduction of suffering and working towards the ultimate elimination of extreme poverty in the world’s poorest countries. Currently it has been working in 23 countries across three continents. Recently, we have been awarded as centre of excellence by the Irish government. Our financial report has been awarded many times by the Irish government.

Concern Worldwide began its journey in 1968 in Ireland and it started working with the people of Bangladesh in 1972 by extending its support after the devastating cyclone of 1970.Since then, Concern Worldwide has been working to address extreme poverty in the most vulnerable communities of the country by implementing needs based, innovative humanitarian and development projects. In Bangladesh, Concern Worldwide works jointly with non-governmental organisations (NGOs), Civil Society Organizations (CSOs), different government departments, the private sector and other key stakeholders to ensure the sustainable changes in the lives of the extreme poor.

BP: What is your role as Country Champion? How you will deliver your role for Bangladesh as Country Champion?

A. Ali: My role would be to engage the people, media and inspire the relevant stakeholders such as NPO, auditors, standard setter body, IFRS practitioner, accounting Institute, regulators for their valuable feedback on the designing on the financial reporting system and guidance for NPO sector.  According to the plan, by this time, I have started discussion with national NGO, international NGO, Accounting institute, regulators and other relevant stakeholders. I find everyone is very positive to implement this initiative. Institute of Chartered Accountant of Bangladesh (ICAB) has already agreed to organize a seminar jointly on this topic. ICAB has very active role for adopting any accounting standard and provide their feedback on this valuable reporting for NPO. I have also a plan to engage with university, MFI, National NGO, International NGO, Donor community, other Professional Accounting institute such as ICMAB, ACCA etc. through conducting separate dialogue with them. It is also very important to discuss with FRC, Bangladesh, NGOAB, MRA and other regulatory bodies so that it becomes effective. I believe everyone will take this initiative positively because it’s a demand for this sector and ultimately public, donor, regulators, stakeholders would be benefited from this. 

BP: Was there any study conducted before taking initiative of INR4NPO and what challenges they are identified for NPO Sector financial reporting?

A. Ali: Yes, in 2014, an academic study (CCAB Survey) is conducted which was funded by the UK Professional Accountancy Organizations of international financial reporting for the NPO sector. Out of 605, 72% of respondents from 179 countries agreed that it would be useful to have a financial reporting guidance for NPO sector. After the survey, Humentum, a non-profit membership association, and CIPFA, the Chartered Institute of Public Finance and Accountancy in UK took the initiative jointly to develop the guidance for the financial reporting of NPO sector. The International Accounting Standards Board and the International Public Sector Accounting Standards Board are aware and actively observing the development process.

Currently there is an International Financial Reporting Standard (IFRS) for private sector and International Public Sector Accounting Standard (IPSAS) for the public sector. The existing standard does not meet the requirement for the NPO sector. There are no international financial reporting standard for NPOs as a result different organization are preparing the financial report differently. There is inconsistency in the financial reports, donor needs are not meeting properly, this is high cost for funder and grantees, and there is lack of transparency, double funding issue. 

BP: You told that currently there are IFRS, IPSAS for private and public sector respectively, how many countries are using this and what is the benefit or power of standard?

A. Ali: The public and private sectors have benefitted hugely from international reporting guidance in the last 35 years. IFRS has been applicable from 1973 for private sector and currently it has been adopted in more than 113 countries. If we see the study report published in 2017, we can see that private sectors have benefited tremendously from IFRS. IFRS Standards ensure transparency for the stakeholders. It enhances the international comparability and quality of financial information. It is very helpful for the investors and other market participants and stakeholders as well to make their informed economic decisions. IFRS Standards also reinforce accountability. It reduces the information gap between the investors and the people to whom they have entrusted their valuable money.

We can say IFRS is a source of global comparable information and it is very important to regulators around the world. IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. It is a single trusted accounting language for businesses. It lowers the cost of capital and reduces international reporting costs as a result business sector has been hugely benefitted from IFRS. IPSAS has been applicable from 1997 and it has been adopted in more than 19 countries and it is expected that 72 countries will adopt IPSAS by 2023. 

BP: What is the process for developing a standard and how it would be adopted by the country?

A. Ali: There are three processes that are normally followed for any standard development such as consultation, development and launching phase. The equivalent process to all other international accounting standard is being followed to develop this guidance as well. According to plan, the consultation paper will be done by Jan 2021. The areas would be covered in the consultation paper such as definition of NPO, applicable guidance, users of general-purpose financial report, basis of NPO guidance. It will also cover specific accounting issue such as financial statement presentation including fund accounting, narrative reporting, cash transfers (Grants & donations), gifts and services in kind, expenditure classification, fundraising costs, Grants made – when to recognise expense, assets held for social purpose, inventory held for use or distribution. In the development phase, exposure draft will be published in Mid-2023 and in the launching stage final guidance would be published by Dec’2024.

BP: What is the current problem for NPO, Funders and Auditors?

A. Ali: There are some common problems for NPO, Funders and Auditors in NPO sector. The common problem are multiple donor financial report formats; multiple project audits; duplication with main audit; numerous due diligence processes; annual audited accounts not so useful; no national NPO reporting standard; some donor accounting rules conflict IFRS, IFRS silent on many relevant issues; huge variety in format and content of partner financial statements; hard to assess financial health of partners; challenging to train staff to understand financial statements; difficult to see funded projects in context of the organization as a whole; funders are often accountable for backing donors, so may therefore place additional accountability requirements on grantees; neither IFRS nor IPSAS meet the needs of NPOs; NPO in countries which lack national standards; lack of authoritative international guidance; ambiguity over which framework to quote in audit opinion.

BP: What exactly IFR4NPO will deliver to address the current problem?

A. Ali: IFR4NPO will prepare the guidance and standard for internationally applicable to address the current problem and then Country and funder can adopt the decisions. This guidance will improve usefulness, transparency and consistency of NPO financial reports. It would be helpful for Funders to reliably assess financial health of NPOs. Auditor can provide their simplified audit assurance provision following the guidance. NPOs will get the tools what they need and want. NPOs would be able to demonstrate their own capacity. More importantly, this will create IFR4NPO Community – global network of NPO stakeholders. We know there are different type of financial report is required to prepare in NPO sector. We can classify them as internal report, donor report and general purpose financial report. IFR4NPO’s focus on the general purpose financial report. 

BP: How a person can be involved to provide their valuable option for this project?

A. Ali: It is open for every person who would like to provide their valuable opinion and they can visit the website www.ifr4npo.org and subscribe to newsletter, join the conversation in the online forum, follow and share on social media (LinkedIn, Twitter) and attend the events, endorse the project supporters page and submit a response to the consultation paper (after Jan 2021). Anyone can contact at info@ifr4npo.org. They can contact with me as well for their feedback.

BP: We know that the business sector has been affected hugely due to Covid-19 and what is the impact for NPO sector due to Covid-19?

A. Ali: The business sector and NPO are very much interlinked. Due to Covid-19, income has been affected severely for the individual and business community. NPO sector gets some funding from these people and business communities. There will be impact on grant income and ultimately it will impact the employment of NPO sector as well. However, due to Covid-19, some donor have allocated additional grant for the response of Covid-19. However we expect the next few years to be a challenging funding environment as all counties are affected by the crisis and therefore there may be an impact on charity sector.

BP: Finally, would you say something about the career building opportunity with the NPO sector and advice for?

A. Ali: Actually, I am not expert on the career building advice but I say that I am very lucky to get the opportunity to work with the charity sector. I have been working with NPO since beginning of my career. I used the word lucky because I have been working with the organization whose activities are to help the extreme poor people to transform their lives. When every morning I think that I have been working for someone to help in a team then I get a confidence my work. In terms of career progression, there is an ample opportunity in the NPO sector as well. There is huge areas to learn, grow and change of own lives and other lives as well.  I can say if anyone is interested to contribute for the people, society, country and the world, they can join with NPO sector. For this, someone have to determine first that they will work for the people who need the support. If this sprit in their mindset then automaticity the person will do hard work and we all know that hard work always has an impact. In terms of advice, I would say hard work is very important but there must be connection with soft skill and otherwise hard skill might not work properly. Although there are many more challenges for the employment and work opportunity but bringing new learning, innovative ideas, soft skill with hard work can eliminate all obstacles in career path in the NPO sector. In my opinion, Non Profit Organizations (NPOs) need more professional accountants to ensure transparency and accountability for the sector.

Thank you, Bangladesh Post, for covering the interview to commemorate the occasion of International Accounting Day.  Thank you all. Happy International Accounting Day-2020!