Analysis of Tear Fund Financial Statements

Introduction

Tear Fund is Not-for-Profit Organization that works with churches in places in the world where people are marginalized. The organization should prepare financial statements as per Financial Accounting Standards Board (FASB) guidelines (Summary of Statement No. 117, 2016). A Not-for-Profit Organization is required to prepare the following financial statements; statement of financial position, statement of activities and statements of cash flows. Notes to the accounts have also been prepared to explain the financial statements. Tear Fund prepares all the financial reports according to FASB and discloses all the assets, liabilities, net assets, changes in the net assets and the changes in cash and cash equivalent (Annual Report and Financial Statements 2014/15, 2015, p. 27). Tear Fund uses three categories of funds as per the FASB guidelines to prepare its financial statements. The categories are; unrestricted general funds designated unrestricted funds and restricted funds (Not-for-Profit Accounting: Reporting and Analysis, 2013, p. 4). The classification is done according to the FASB where the unrestricted general funds can be used according to the plans of the management team while the designated unrestricted funds only used for specific purposes identified by the management. The restricted funds are used according to the directions of the donors. The board of Tear Fund cannot use the funds as per their wishes, for the financial year 2015 they were 8508, an increase from year 2014.

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In the Tear Fund operations, there are areas of potential interest in the revenues and expenses such as the fundraising resources and costs funds. The stakeholders would have an interest in knowing the exact amount collected from fundraising since no particular measures estimate the exact amount raised. While in the cost of funds, they would have an interest in knowing the different costs available and if the cost would have any minimization ways.

Analysis of Tear Fund cash flow statement

The cash flows statement of Tear Fund is prepared using the indirect format. The operating cash flows are obtained by analyzing the movement of the working capital. The operating cash flows include the investment income that the organization received. The disclosure of the cash flows from the investment is emphasized for Tear Fund since it is an operating activity of concern to top donors and other stakeholders. In GAAP, the decrease or increase in the net assets is reported in the cash flows from investing activities, while in the cash flows of tear fund, it is under operating cash flows (Annual Report and Financial Statements 2014/15, 2015, p. 32). The reporting of the increase or decrease in fixed assets as an operating activity is because of the uniqueness acquiring income in the organization. The cash flows further emphases on the explaining the movements in net cash flows and breaks down of the funds available into different categories such as cash at bank, short-term deposits, and interest-free loans. The funds break down assists the board in enhancing the transparency of the Not-of-Profit organization though it is not expected under the GAAPs.

Funds utilization

Tear Fund recognizes pledges and other promises when they have certainty. Some of the pledges are done by parties such as labor part. In the reporting of the commitments and contribution, Tear Fund combines the two together to have a consolidated fund. They are recognized as income at the time of pledge. When the contribution is made, funds received are treated as cash flow. The organization utilizes several types of funds in the provision of aid to the marginalized people revenue. The funds utilized come from different sources with different conditions. The funds utilized include grants, fundraising, donations, investment income and income from charitable activities (Annual Report and Financial Statements 2014/15, 2015, p. 31). Grants come from some of the partners of Tear Fund whose projects have been approved. The donating comes from volunteers such as churches, individuals, companies and other institutions. Investment activities engaged are mostly short term ones. Income from charitable activities is composed of contract that the organization is given in different places to undertake. For example, in the financial year 2015, the contract to provide water, sanitation and health services in the Democratic Republic of Congo.

Assessing fiscal condition of Tear Fund

The current ratios for the fiscal year 2015 and 2014 respectively were 7.68 and 7.58. The ratios show that Tear Fund is financially health and can meet obligations when due (Not-for-Profit Accounting: Reporting and Analysis, 2013, p. 47). The ratios also indicate that the organization has healthy cash flows. The current ratios of Tear Fund are relatively high in comparison to the industry ratios indicating a good performance that may indicate longer service in the Not of Profit industry. The assets of funds ratio of Tear Fund were 1.139 and 1.143for the year 2015 and 2014 respectively. The ratios indicate that the management of the assets is good and implies that the organization is healthy financially. The fundraising analysis of Tear Fund shows that the cost associated with the funds raised was 0.85. The cost is relatively high and needs a review to ensure more money made in the fundraising is used in the helping of the marginalized communities. Donations made up 65.74 % of the total income of Tear Fund while grants contributed 24.87% of the total revenue. The two had a cumulative collection cost to revenue of 10%. The cost of the collection of the two revenues was comparably low and acceptable; hence, the organization should strive to maintain the level. The percentage of contribution towards the income for grants and donations indicated that they are significant sources of revenue for the organization. Since it is a Not-of Profit organization, the high contribution of donations towards the revenue of Tear Fund shows it is doing well and trusted in the society. The project of Tear Fund has been successful over years and shows prospects of meeting its going concern objective since it has promising financial strength.

References

Annual Report and Financial Statements 2014/15. (2015) (1st ed.). Glasgow. Retrieved from <http://www.tearfund.org/~/media/files/main%20site/about%20us/financial%20reports%202015.pdf>

Not-for-Profit Accounting: Reporting and Analysis. (2013) (1st ed., pp. 1-68). Los Alamitos, CA. Retrieved from <https://www.webcpe.net/CPE-courses/1420/1420_Course_Material.pdf>

Summary of Statement No. 117. (2016). Fasb.org. Retrieved 10 March 2016, from <http://www.fasb.org/summary/stsum117.shtml>