ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued new accounting standards for the not-for-profit organizations (NPOs) to specifically disclose financial details of “Zakat” contributions.
The SECP has issued SRO 240(I)/2024 here on Tuesday on the “Financial Statements Disclosures of Zakat Received by an Entity.”
The NPOs shall apply the standards for annual reporting periods beginning on or after January 1, 2024.
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Users of financial statements can benefit from the financial statements disclosure about Zakat. Public confidence in general can also be gained by transparent and full disclosure of financial information about Zakat, received and utilized by the entity, the SECP added. An entity receiving Zakat shall provide following specific disclosures:
The accounting policy adopted for the utilization of zakat, stating the basis on which Zakat utilized by the entity is recognized in the financial statements. The entity shall adopt a basis for accounting the utilization of Zakat, and apply it consistently.
According to the SRO, the objective of general-purpose financial reports of NPOs is to provide information about the NPO that is useful for accountability and decision making by users of the financial reports.
The entities, mainly NPOs, receive and utilize zakat in Pakistan. The contribution and utilization of Zakat also involve a large number of donors and beneficiaries.
The contributions received in the form of Zakat could be material to the NPOs financial statements. Financial information about Zakat is also relevant and useful for the users of financial statements, including contributors and other decision-makers.
The financial reporting standards as applicable in Pakistan, including International Financial Reporting Standards, IFRS for Small and Medium-sized Entities, Revised Accounting Standard for Small-sized Entities, and Accounting Standard for Not-For-Profit Organizations do not provide specific disclosures regarding zakat received and utilized by an entity.
The SECP’s notification disclosed that the Accounting Standard shall be applied by the entity that receives Zakat. The receipt of Zakat by an entity may be significant for the preparation of the financial statements for two reasons. Firstly, if resources have been transferred, an appropriate method of accounting for the transfer must be found. Secondly, it is important to provide users of financial statements, including entities that are providing Zakat, information about the utilization of Zakat.
The entity is also required to comply with accounting and disclosure requirements of the financial reporting standards (for example, International Financial Reporting Standards, IFRS for Small and Medium-sized Entities, Revised Accounting Standard for Small-sized Entities, and Accounting Standard for Not-For-Profit Organizations) that are applicable to such entity, the SECP maintained.
The standard does not specify the recognition and measurement of Zakat received and utilized by an entity, and included in the income for the years. The accounting shall be done in accordance with the financial reporting standards applicable to the entity.
The Standard also does not prescribe modes and purposes of utilization of Zakat, the SECP added.
Copyright Business Recorder, 2024
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