SECP Issues New Accounting Standards for Non-Profit Organizations Which Collect Zakat

For not-for-profit organizations (NPOs) that use or receive zakat, the Securities and Exchange Commission of Pakistan (SECP) has released new accounting standards.

On Tuesday, the SECP released SRO.140(I)/2024 in this location.

For annual reporting periods starting on or after January 1, 2024, an entity or NPO must adhere to the requirements.

When receiving zakat, an organization must provide the following particular disclosures:

The basis for recognizing zakat used by the entity in the financial statements is specified in the accounting policy set for zakat utilization. The entity must choose and regularly implement a basis for accounting for zakat consumption.As per the SRO, the aim of general-purpose financial reports for non-profit organizations (NPOs) is to furnish relevant information about the NPO to enable users of the financial reports to make informed decisions and ensure accountability.

Zakat is received and used by entities in Pakistan, primarily non-profit organizations. Numerous donors and beneficiaries are also involved in the zakat donation and utilization process.

Zakat contributions may have a significant impact on the NPOs’ financial reports. Contributors and other decision-makers who utilize financial statements will also find financial information concerning zakat pertinent and helpful.

There are no specific disclosures made about zakat that an entity receives and uses in accordance with the financial reporting standards that apply in Pakistan, such as the International Financial Reporting Standards, IFRS for Small and Medium-sized Entities, Revised Accounting Standards for Small-sized Entities, and Accounting Standards for Not-For-Profit Organizations.

The organization that receives zakat is responsible for applying the Accounting Standard. For two reasons, an entity’s zakat receipt may be important when preparing the financial statements.

First and first, if resources have been moved, a suitable accounting technique for the move needs to be identified. Second, it is crucial to give information on zakat utilization to those who utilize financial statements, especially entities that offer zakat.

When disclosing details about zakat that was received and used during the time, an entity must follow this criteria. Financial reporting standards that apply to the entity in question, such as the International Financial Reporting Standards, IFRS for Small and Medium-sized Entities, Revised Accounting Standards for Small-sized Entities, and Accounting Standards for Not-For-Profit Organizations, have accounting and disclosure requirements that must be met by the entity.

The measurement and recognition of zakat that is received, used, and included in an entity’s income for the years are not specified in the standard. The accounting has to be completed in compliance with the entity’s appropriate financial reporting requirements. 8. The Standard does not specify how or why zakat should be used.

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