Draft Standard on Financial Reporting for Non-Profit Organizations Released for Public Consultation

The Public Oversight, Accounting and Auditing Standards Authority (“KGK”) has announced that the draft text of the Financial Reporting Standard for Non-Profit Organizations (“KAGI FRS”), prepared as part of its efforts to establish a dedicated financial reporting framework for non-profit organizations, has been released for public consultation pursuant to KGK Announcement dated 11.09.2025 and numbered 2025-54.

The key provisions envisaged under the Draft KAGİ FRS are summarized below for your information.

Purpose and Scope of KAGI FRS

As is well known, pursuant to Article 88 of the Turkish Commercial Code No. 6102, natural and legal persons obliged to keep statutory books must prepare their financial statements in accordance with the Turkish Accounting Standards. The same provision authorizes KGK to establish specific standards for non-profit organizations. Non-profit organizations are legal entities that, rather than pursuing profit, prioritize public interest, social benefit, or the common interests of their members; do not distribute their income to founders or members but instead allocate it to the realization of their activities and objectives; are financed predominantly through donations, membership fees, grants, and voluntary contributions; and are typically organized as associations, foundations, trade unions, professional bodies, or similar legal entities. KGK has identified that there is no common accounting framework for such non-profit organizations, which has led to various practical issues, and in order to address these problems, it has prepared the KAGİ FRS and submitted it for public consultation. Within this authority, the KAGI FRS has been developed with the aim of introducing a framework tailored to the financial reporting needs of organizations that prioritize social benefit rather than profit-making.

The Fundamental Objectives of KAGI FRS:

- To provide fair and comparable financial information that will assist founders, donors, members, and other users in making informed decisions,

- To establish a framework consistent with international reporting standards,

- To ensure uniform application in the accounting of transactions specific to non-profit organizations,

- To strengthen accountability through the publication of an annual activity report together with the financial statements,

- To enhance transparency regarding the objectives, strategies, resource utilization, and performance of organizations.

Key Provisions Envisaged under KAGI FRS

1. Scope of Financial Statements

Pursuant to KAGI FRS, non-profit organizations will be required to publish five core financial statements:

- Statement of financial position,

- Statement of activities (income and expenditure based),

- Statement of cash flows,

- Statement of changes in net assets,

- Notes to the financial statements.

In addition, organizations will also be required to prepare an annual activity report.

2. Accounting Principles

The accrual basis has been adopted for the preparation of financial statements, while a limited application of the cash basis is permitted for certain small-scale organizations. In terms of revenue recognition, a distinction is made between unconditional donations and conditional donations; conditional donations are recognized as income only when the relevant condition is fulfilled.

Furthermore, under KAGI FRS, detailed rules have been introduced regarding the reporting of membership fees, donations, grants, sponsorship income, and voluntary services.

3. Measurement of Assets and Liabilities

Under KAGI FRS, the initial recognition of tangible and intangible fixed assets shall be made at cost, subject to impairment testing.

For financial assets and liabilities, the principles of fair value measurement and amortized cost have been adopted.

Assets acquired through donations are required to be recognized at their fair value.

4. Consolidation and Affiliated Entities

Under KAGI FRS, where a non-profit organization has affiliated entities or other structures under its control, the obligation to prepare consolidated financial statements shall arise.

The activities of entities subject to consolidation must also be reported in accordance with the provisions of KAGI FRS.

5. Activity Report

The annual activity report, which complements the financial statements, must include information on the organization’s objectives, strategies, programs undertaken, use of resources, voluntary contributions, and performance indicators.

It is stipulated that this report shall be disclosed to the public together with the financial statements.

6. Scale-Based Applications

KAGI FRS introduces simplified reporting requirements for small-scale non-profit organizations. Such organizations may prepare limited financial statements; however, once they exceed certain thresholds, they will be obliged to carry out full-scope reporting.

Publication and Implementation Process of KAGI FRS

The draft text of KAGI FRS consists of 28 sections and 223 pages.

It is planned that, following revisions based on public comments, the Standard will be published and enter into force in 2026.

Subsequent to its entry into force, sample financial statements and the KAGI FRS Chart of Accounts will be published by KGK.

Public Consultation Process

The text of KAGİIFRS is accessible via the KGK website, and stakeholders are requested to submit their opinions and suggestions by 31.10.2025 to [email protected] or [email protected]