Charity: A Non-Profit Organization for Welfare of Needy People - Essay Sample

Introduction

A charity is an organization that is set up to raise funds to help a particular group of needy people. The goal of a charity is to achieve the maximum quality of welfare of the people that it is formed to cater to their needs (Charity Commission, 2013, 2). Charities are non-profit organizations, which are run without the aim of making profits. Neither does their goal include the maximization of their owners' wealth or returns. The key performance indicators of charities are quite different from other organizations that are run based on providing commodities for a profit. Some of the key performance indicators of charities are donation growth, donor retention rate, donor satisfaction, and outreach. Based on the above examples, it is evident that the goals of a charity are quite different from those of other organizations, as they seek to improve the welfare of people through donations (Resource Centre. 2018, 2). As a result, the reporting requirements of a charity are different from those of the other types of organizations.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

There are various requirements that a charity is supposed to abide by in its reporting, which are different from those of other types of organizations. That is based on the fact that the charity and other profit-oriented organizations have different types of cash flows and their effect on their financial statements in an accounting period. First and foremost, charities are required to prepare a trustees' annual report as well as a set of accounts concerning each accounting period that the charity was in operation (Charity Commission, 2008, 6). The goal of the statements is to provide a clear picture of the financial position of a charity and its activities. For the trustees' report, its aim is to show how finances were used to the funding entities. That is meant to enhance accountability for the funds that were received from the various sources into the charity. That is one of the unique requirements of a charity, as the donors are its primary sources of funds, and they need accountability.

Furthermore, for charities, it is a reporting requirement that the trustees must prepare annual reports and make them available to the public on request. That is different from other types of entities, for example, private companies, whereby it is not a requirement that they must publicize their financial statements. In the case of charities, they are treated like public companies, where their financial statements must be broadcast after every reporting period. The trustees' report must be drafted on time and made available to any party interested in the welfare of the charity. The requirement to make the financial statements available on request is meant to enhance accountability because the activities of a charity are meant for the public's interest. In the trustees' annual report, the charity is required to give a detailed explanation of its operating objectives, and how well it is achieving them. That is meant to show the public how well their funds are being put to use and the progress of the work that the organization is undertaking with time.

All the trustees with a gross annual income of more than PS25,000 are required by law to submit to the charity commission their trustees' annual report. However, the legal requirements of all the charities are not the same; they depend on the amount of income and the type of charity. For example, for the trustees with a gross income of less than PS25,000, the requirement is the Preparation of a simplified trustees' annual report. That includes the names of the trustees, a brief financial review, and a description of the charity's structure (Dropkin & Halpin, 2012, 17). The report can also have extra information, which may help in a better understanding of the charity's financial position. Moreover, the charities are required to submit an annual return, provided they have a yearly income of more than PS10,000. The deadline for the submission of a yearly return is ten months after the end of a specific financial year. For the charities with an annual income of less than PS10,000, they are required to draft a yearly update, meant to keep their entry into the charity register up to date. Furthermore, there must be a disclosure of significant events that took places such as risk to beneficiaries or fraud.

On the financial statements that are submitted by the charities, there should be the registered status clearly stated, in addition to its registration number. For charities, they are allowed to use either the accrual or cash basis of accounting, depending on the nature of its transaction. The type chosen should be one that best suits the quality of the transactions that the charity is having. Furthermore, the accounting treatments should be explained in the notes; to help them better understand and analysis of the charity's financial statements (Cordery & Baskerville, 2007, 14). Scrutiny is the other characteristic of charity reporting, where there might be the need for either internal or external investigation. For charities with an income of above PS25,000, there is the requirement of an audit or independent examination of accounts. For charities with an annual income of over PS1m, there is a need for an audit. Moreover, the type of scrutiny that an organization is expected to undergo is dependent on its income, legal structure, and composition of its constitution. Basically, these are some of the requirements for charity reporting, which are slightly different from other types of entities.

Some various advantages and disadvantages are associated with charity reporting, which are worth noting. Concerning the benefits, the charity system of accounting enhances accountability among charity organizations. The charity organizations are susceptible to embezzlement of funds; because they are not profit-oriented. That makes it tempting for the people in charge to use the finances in a manner that is less than efficient. However, fund accounting enables accountability through the Preparation of the trustees' annual report. The report enhances accountability by making the charity managers accountable to their donors. Furthermore, fund accounting has mandatory audits for all charities falling under different income brackets. That enhances accountability because the quality of the financial statements will be scrutinized to make sure there is fund accountability (Ali et al., 2012, 4). In charity accounting, there is the requirement of the sending of annual trustees' reports and annual accounts to all members during the Annual general meeting. That serves as an advantage as it enables the members to check whether the charity is operated according to its objectives. Based on the above benefits, in terms of checks and balances, the accounting for charities can be termed as high, as it ensures accountability in reporting.

Despite the various advantages, various shortcomings are associated with charity accounting. First and foremost, it is non-comparable to other entities. That is based on the different accounting standards that are adopted for non-profit organizations. For example, one charity organization might be using the accrual basis of accounting while another is using a cash basis. The difference in the standards makes it hard for one to compare the performance of the firms, given the fact that their accounting is done differently. Furthermore, a comparison between different charities is impossible because of the diverse nature of operating activities among the firms. Balancing of interests between upward accountability and downward accountability is the other disadvantage that charity accountability is faced with (Mohd et al., 2012, 15). That is because the reporting is subject to different interests between the beneficiaries (downward accounting) and the donors and government (Upward accounting). That creates a challenge in the process of securing maximum cooperation and support from both parties, who need to gauge the quality of the financial statements. Thus, the tensions between the two parties may create an uneasy reporting environment, creating a challenge for the accountants' need to ethically report financial performance. However, even in the face of the above challenges, they are streamlined with sound accounting principles through external audits.

The charity organization that is being focused on in this case is Macmillan cancer support, whose aim is offering support to people living with cancer. The financial statements under scrutiny are for the fiscal year 2017 and 2018. Those are the latest financial statements that are available according to the charity's official website. In the financial statements section, the first item is the independent auditor's report (Macmillan Cancer Support, 2018, 62). That is based on the charity organizations' reporting requirement that an external auditor must audit organizations. Based on its statement of cash flows, it has income that exceeds PS25,000; hence it is required to be reviewed by an external auditor. Thus, based on the auditing of charity organizations whose income is more than PS25,000, Macmillan cancer support is compliant with the specified provision. Furthermore, it is a requirement based on the unique nature of the financial statements of a charity, that there are notes. At the end of the financial statements section, there is a section for notes for the financial statements of the period. That is compliant with the requirement that there be notes in the financial statements, which will enable an individual to understand the accounting treatment of different provisions. Based on the notes, any party can be in a position to understand the use of various accounting policies in the financial statements.

The Preparation of a trustees' annual report is the other unique requirement of the reporting framework by a charity. The trustees' annual report is a narration of the entity's accounts, whereby how it is run, achievements and activities are documented. The Preparation of a trustees' annual report is the other unique requirement of the reporting framework by a charity (Macmillan Cancer Support, 2018, 12). The trustees' annual report is a narration of the entity's accounts, whereby how it is run, achievements and activities are documented. The purpose of the trustees' annual report is to explain the numerical values in the financial statements. Concerning the Macmillan cancer support charity, it has complied with the requirement of preparing a trustees' annual report. In the report, there is a description of the healthcare services provided, growth in service provision in the reporting period, infrastructural changes, risks, and uncertainties. That is based on the comparison between the results obtained in 2017 and the entity's performance in the 2018 reporting period. Thus, on that part, the charity is compliant; hence there is evidence of proper financial reporting. From the report, the other compliance issue is the Preparation of all the other financial statements. The entity has an updated statement of cash flows, statement of financial position, and a consolidated statement of financial activities. Thus, it is evident that the charity complies with re reporting requirements for charities.

In addition to the financial issues that are described in the various financial statements and elaborated in the trustees' annual report, the charity informs readers about a variety of non-financial matters. There is an entire chapter that is dedicated to the analysis of the entity's governance. That is where an organization's legal and administrative details are explained in detail. The chain of authority and responsibility in the organization is also detailed, where there is the highlight of the employees that are responsible for different function s(Macm...