Civic World

Q & A

Will the Law for accountancy of non-profitable organisations fill the gaps in the legal frame?

The financial operations of the civic associations have not been regulated yet. We asked Mr. Nikolaki Miov for a more detailed explanation of how the Law for accountancy of non-profitable organisations is applied.

“Even after 12 years of transition, the legal frame1 of the civic associations and non-profitable organisations in general, is not completed. It leaves an opportunity for all sorts of evaluations of the sector, ranging from completely negative to non-critically positive and as usual, always approximate and generalised, based on isolated events. The non-profitable organisations in the part of financial working often need to be looked for between lines and among laws which regulate this field for trade companies and state organs. It often ends with interpretations from case to case, without a feeling that it is about a consistent regulation directed towards establishing order and giving directions to the non-profitable organisations’ working.

One of the rare laws that directly refer to the non-profitable sector – the Law for accountancy of the non-profitable organisations was published in the Official Gazette of the Republic of Macedonia 24/2003. After a detailed analysis of its articles, instead of a feeling that we have approached the international standards in this field, we feel that the law will need to be interpreted again and is likely to be amended or changed. It has been enforced since 1st January 2003, but it is still non-applicable as a result of the sub-legal acts that have not been passed yet by the Ministry of Finance:

Form and mode of bookeeping;
Kind, contents, control and moving the accountancy documents;
Accounting plan;
Rates for writing off long-term assets;
Mode of revalorisation;
Mode of making an inventory;
Form and contents of the financial reports;
Special data for state evidence;
Other closer regulations for implementation of the law.

The existing acts according to the old law for accountancy will be used until the above-mentioned acts are not passed. The sphere of activity of the sub-legal acts is such that in practice records are kept as if a new law was not passed yet and we already know the quality of the financial reports in accordance with changes passed a week before its preparation.

In article 1 of the Law, instead of a clear definition and conditions which an organisation is to fulfil, so that while keeping the books it can apply this law, there is a simple listing of the organisations it refers to with the inevitable “and other legal entities established with special regulations, thus being non-profitable, if not regulated otherwise by another regulation”2.

“The non-profitable organisations whose overall value of the property or annual income is smaller than 2500 Euro”3, do not have to submit financial reports and keep the books according to this law. It is enough to run the treasury and a book of revenues and expenditures. The conjunction “or” is clear: If it does not have a property, but it has an income of one million Euros, it does not submit financial reports.

In article 2 it is stated to apply the accountancy principles, the accountancy accepted practice and accountancy standards, that is international standards, but again only if they are not opposed to another regulation.

The Law introduces “an accountancy principle of modified making business changes”4. This principle, according to the way it is defined in the Law, allows revenues, if in a period of 30 days after the expiration of the time limit are available and expenditures after the expiration of the estimate period, if made in a period of 30 days, to be taken in the current estimate period. This article introduces a hybrid method of keeping business records in the non-profitable sector. This is in contrast with the same law which requires “accurate, real, certain, overall, punctual, diligent and single expression of the balance positions, assets condition, obligations, assets resources, revenues and expenditures, and the results from the operations”5. This means that if you pay the demand on 30.01. it becomes revenue, and the expenditure paid on 31.01. is not expenditure. It is obvious that the principle of coinciding the revenues and expenditures necessary for their realisation and leading to unreal financial reports, for revenues and expenditures, demands and obligations, on the day they are prepared, has been abandoned.

The annual account of non-profitable organisations contains the following: condition balance, profit and loss account and notes to financial reports.

The notes to the financial reports are “a detailed elaboration and amendment of the data from the condition balance and profit and loss account “6 and it is a modified request in terms of the international standards which require the notes to present information about the basis for preparation, relevant accounting policies and some additional information which are not presented anywhere else and are necessary for objective presentation.

Even in this law the report on monetary flows has not managed to find its place in the financial reports.

The Law, however, is a better solution in the business records of the non-profitable organisations and can improve the conditions if all sub-legal acts are passed on time. However, for complete regulation of the practices in the non-profitable sector, some changes and amendments are necessary:

to clearly define the conditions for non-profitability;
to introduce a division of unlimited, timely limited and constantly limited assets and resources;
the basic assumptions to be in compliance with the standards: accounting basis and continuity;
To clearly define revenues and obligations. If you have received money, it does not mean that you have revenue until you meet the condition under which money has been given;
leaving revalorisation as a method of co-ordinating value because we are no longer under conditions of inflation which justifies it;
apart from reporting on revenues and expenditures according to kinds, it should also be reported by activities;
Publicity of financial reports. A common web-site would be enough to avoid expenses;
to introduce a review of monetary flows;
To allow application of higher standards for keeping business records if an organisation evaluates that they will present its working more objectively as well as some facilitated conditions for keeping business records based on several criteria, not only property or revenue.

---

Brief expose of the international practice in modelling the legal frame here: www.icnl.org/gendocs/checklist.htm
Law for accountancy of non-profitable organisations (Official gazette of RM 24/2003), article 1
Ibid., article 18
Ibid., article 13
Ibid., article 2
Ibid., article 17