Financial Reporting Practices of NGOs in Bangladesh with Special Reference to BRAC and ASA

Abstract

Non-government organizations (NGOs), as a big actor in the development sector of Government of Bangladesh have been facilitating their development programs through utilizing different donors’ fund and from their own. But a question frequently arises in Bangladesh regarding the management and utilization of huge amount of money by the NGOs and whether they follow Companies Act. 1994 and FAS No. 93, 116 &117. In this study, we intend to explore the present condition of financial reporting practices of NGOs in Bangladesh. The objectives of our study are to examine the financial reporting practices of NGOs. In particular, the objectives of our study are as follows : (i) to examine the characteristics of the financial reporting practices of NGOs like BRAC & ASA; (ii)to measure the extent of disclosure items of BRAC and ASA; (iii) to identify the association among disclosure score and variables affecting the disclosure score; (iv) to judge the opinion of the expert groups regarding the qualitative characteristics of accounting information and the compliance of standards by selected NGOs; (v) to suggest for improvement in disclosure by the sample NGOs. Both primary and secondary data have been used for the study. Separate methods and techniques have been followed for collecting both types of data. We have prepared two sets of questionnaire: One for the experts in accounting and other for the NGO executives. The questionnaire is close ended. First set of questionnaire consists of 17 questions which were meant for the experts in accounting and the second set of questionnaire consists of 64 questions which were meant for the NGO executives. The researcher has used quantitative techniques to analyze the collected and classified data. Quantitative analysis has been done through simple Tables. This technique has involved simple calculation of mean, standard deviation, co-efficient of variation, ratio analysis, regression, t-test and Chi-square test. It is evident from our study that the selected NGOs follow GAAP and IASs/BASs such as IASs BASs No. 1, 7, 8, 10, 16, 18, 19, 23, 24, and 37 but the total scores of disclosure are not sufficient. However, the extent of disclosure by the NGOs is moderate, though they follow chart of accounts, use internal check system and comply with the relevant Acts. They also take measure for safeguarding their assets and they use a wide range of depreciation rates. The study finds significant differences in disclosure score regarding accounting policy items, balance sheet items (assets), balance sheet items (liabilities), the income statement items (debit), the income statement items (credit), and the total disclosure score of the selected NGOs. But it has failed to show any significant difference in disclosure score regarding the information as to projection and budgetary disclosure, the information relating to various useful statements and the information useful for measurement and valuation method of the selected NGOs. The univariate regression analysis reveals that the size of NGOs proxied by the total assets, total revenue, and equity capital significantly affects the disclosure score of the selected NGOs while the liquidity as proxied by current ratio, net working capital ratio and leverage as proxied by debt-equity ratio, total debt to total assets ratio do not affect the extent of disclosure score. If we turn towards the result of opinion survey on the respondents we observe that the results of chi-square test on opinion survey documents no significant difference among the respondents regarding the compliance with legal framework, the application of IASs & IFRSs, the extent of understandability, the compliance of decision usefulness, the extent of relevance, the extent of comparability and the extent of consistency by the selected NGOs. But there is significant difference among the respondents regarding the extent of reliability by the selected NGOs. The NGOs play a significant role for the economic development of Bangladesh. This economic development depends to a great extent on the disclosure of accounting information because accurate and relevant accounting information about NGOs help their management as well as the Government to keep them on the right direction. Here, reliable and relevant information about NGOs have a role to play. The study provides testimony to the fact that there is significant difference in disclosure scores and regarding balance sheet and income statement items except for projection and budgetary items and for information relating to valuation methods. The study evidenced significant associations between disclosure score and size as proxied by total assets, revenue and equity capital but no association was found between disclosure score and liquidity as well as leverage. Finally, respondents were unanimous regarding compliance with legal framework, application of IASs & IFRSs and the extent of understandability with the exception of reliability. If the suggestions are implemented then the transparency of the NGOs as well as the disclosure will be improved. Every study has some limitations. Although we have taken due care in selecting the sample, choosing the period, collecting, editing and analyzing the data, selecting the respondents our study has some limitations. The limitations of our study are as follows: We have selected two NGOs to evaluate the financial reporting practices of them. But the inclusion of more NGOs would increase the representativeness of our sample. The Regulatory Acts of the NGOs do not require any disclosure by them. Accordingly, we had to construct disclosure index using Companies Act 1994, since The Society Registration Act and other Regulations do not require any disclosure. Another limitation of our study is that our data are not adjusted for price level changes because the relevant NGOs prepare their financial statements using historical cost figures. The Acts are silent regarding the number of financial statements and their contents. So, provision should be made in the said Acts regarding the type of financial statement, number of financial statement, frequency of the issuance of financial statement. The accounting system of the selected NGOs should be computerized. An Act that contains sufficient provision regarding disclosure of its different dimension should be enacted and strict compliance with the Act must be ensured. Disclosure provision regarding receipts and payment of money, accounting policy followed valuation method of assets, purpose of spending the donation, frequency of report preparation, audit lag allowed and rules regarding changes in accounting policy should be clearly mentioned in concerned Act that will deal with NGO affairs. Strict adherence to financial rules regarding NGOs dealing with monetary affairs with the public should be ensured. Sufficient measures should be taken by the Government of Bangladesh so that any NGO cannot receive any money from the foreign donors through illegal means such as hundi since there is a possibility of spending this money in the illegal sector. In fine it can be concluded that the present study has been conducted using two selected NGOs. Further in-depth study on disclosure can be conducted taking more NGOs as sample and covering more dimensions and more time.