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Introduction of
Accounting Feasibility of GCCIA That How a Financial Report Can be generated
Background
of Gulf Cooperation Council
Due to the economic agreements and contracts between the
States of Gulf Cooperation Council signed by their Highnesses and Majesties in
1981, various parties and committees were developed for implementing and
administering the power grid. In 1986, the project idea was obtained when a
committee conducted research from GCC nations in a collaboration with the
Research Institute of Kuwait and King Fahd University of Minerals and
Petroleum. In a subsequent manner, the Committee of GCC understood the
technical advantages of the project and a study concerning feasibility update
was conducted by them in 1990 in a mutual collaboration with the Investment
Bank of Gulf and SNC-Lavalin based in Canada for determining project
sustainability from a financial and economical perspective. Consequently, GCCIA
was established.
In 2001, the establishment of GCCIA or GCC Interconnection
Authority was agreed upon by the nations of GCC for the objective of
interconnecting the available power systems of the nations of GCC. Resultantly,
no. M/21 of Royal decree was created for establishing the authority with its
domicile in Saudi Arabia, Dammam.
The authority, in 2002, left
its footprint in history by beginning its operations through consultant hiring
for presenting the project, undergoing an exercise of prequalification, and
staff employment. In 2005, exactly fourteen contracts equivalent to one billion
dollars were rewarded. In November 2005,
the execution of the project began and in the starting of 2009, it ended. The
segregation of the project resulted in 3 phases. The very first phase was
concerned with the interconnection of Qatar, Bahrain, Saudi Arabia, and Kuwait;
the second one is concerned with the integral incorporation of Oman and UAE
power systems; and the third one is about connecting the second phase with the
first phase. The first phase has been completed and states have been engaged in
exchanging power among themselves
The implementation of physical
infrastructure has taken place while it was expected that the last phase would
produce outcomes in 2010. Now, outcomes have been derived from it as well. This
infrastructure involves an interconnection AC of 50 Hz systems of Oman, UAE,
Qatar, Bahrain, and Kuwait with an HVDC back-to-back interconnection with the
Saudi Arabian 60 Hz system.
In parallel with the GCC electricity
networks’ interconnection, a step has been taken by the countries of GCC
towards greater incorporation of different gas networks. The current GCC
project of gas pipeline exports to Oman and UAE from Qatar. Considerations have
been given to Kuwait and Bahrain as well. Besides Bahrain, nations taking a
part in the interconnection project of GCC have sufficient resources of natural
gas or oil. UAE, Kuwait, and Saudi Arabia have impressive resources of oil
along with natural gas. In the whole world, gas reserves in Qatar are
third-largest and the top exporter of LNG. The GCC scheme of electricity
trading is not usual in that four of the nations of GCC with substantial
resources of hydrocarbon have participation in OPEC. Although their oil exports
are capped by the quotas of OPEC, the same is not the case with domestic
consumption. For the use of domestic oil, they result in low-cost opportunity
and in spite of petroleum products’ high value of export, economic incentives
for countries with sufficient oil resources to utilize natural gas or import
electricity in the generation of power is diminished significantly.
Since the global market is much more
fragmented and regionalized for natural gas, policies of OPEC for capping exports
haven’t been adopted. In spite of this, gas export cost outside the region is
quite high while the opportunity cost of utilizing it regionally or
domestically for generation of power is comparatively low. Therefore, there is
high utilization of natural gas for the generation of power among countries of
GCC either utilizing imported gas from Qatar or domestic gas. In the region of
Oman and UAE, Qatar is considered a natural gas’s major exporter. Bahrain and
Kuwait also wanted to import gas from it. However, concerns that LNG exports
have been excessively contracted which have led the government of Qatar to
delay further exports of gas both internationally and regionally
Due to this delay, and in spite of the sufficient
resources of gas and oil in the region, three countries of GCC are considering
the establishment of power plants fired by coal. The studies of feasibility
justified the scheme of interconnection based on savings in generating
capacity. Meanwhile, the arrangements of trading which are under-development
are primarily based around interconnectors operating for the exchange of power
generation capacity. But the capacity balance of the interconnector is not
enough to permit significant sharing of electrical energy. For trade, the legal
framework is centered on the PETA or Power Exchange Trading Agreement that is
signed by all participating entities.
Chiefly, this agreement is related to
the obligations of entities which are participating, involving an obligation
for maintaining the least reserve margin of the volume or capacity relative to
operative reserves and system peak demand. It also involves arrangements by
which resources might be utilized by different members from other nations for
satisfying those obligations. With the satisfaction of these primary roles, any
available interconnector surplus capacity might be utilized for trading energy.
Such trades serve to be bilateral agreements among the trading parties and
GCCIA’s role in association with these trades make sure that sufficient
capacity of interconnection is present before the authorization of trade and
its role also offers information to all trading parties
It has also been presented that the
rights of interconnector capacity are auctioned by the GCCIA. The board of
directors governing the GCCIA are nominated by the member states and the regulations
and rules governing the members and authority are issued by a General assembly
or the board comprising the members and board of operating and planning
committees. In the Kingdom of Saudi Arabia, the control centre of
interconnection and GCCIA are located. The arrangements of trading have been
finalized. At this time, the preparation of the case took place. In addition, it
was important for GCCIA to present a yearly financial report. However, this
report was not proposed and the management had to face serious issues.
Political
and Economic Context of Accounting Feasibility of GCCIA That How a Financial
Report Can be generated
The interconnection projects seem to
involve six nations of which three have substantial resources of gas and oil. One
has substantial resources of gas while the other has moderate resources of gas
and oil. Originally, the project was proposed in 1981 as a source of helping
the development of closer political and economic ties among the six nations. Closer
relations were to also include telecommunications, transport, and electricity. With
the rising prices of the world market for oil, natural gas and oil products,
the wealth of nations has increased, and growing wealth has been related to
increasing electricity demand and population growth. Consequently, large
investments are needed in the generating capacity of electricity. Meanwhile, in
response to the issue of meeting the electricity demand, electricity markets
have been liberalized by several countries
Private participation has been invited
by them by having independent plants of power sell their results or outputs to
an individual utility or a buyer:
·
KSA has developed the
Regulatory Authority of Electricity and Co-Generation.
·
Privatization is being
discussed and IPPs are formulated.
The existing capacity of power
generation and energy resources in GCC states are substantial. It is
significant to note that potable water demand is a factor which affects trade
possibilities and power plant locations. Water shortages are faced by all countries
of GCC and all depend on desalination to a specific degree for providing usable
water. Moreover, in this region, an efficient method of producing water is
using desalination with the waste heat produced from the generation of
electricity. Therefore, GCCIA has also recognized water demand as a factor that
affects its projects.
Resources
of Gulf Cooperation Council
It can be said that four of the six
nations of GCC have substantial resources of gas or oil and one has sufficient
resources. These nations have significant resources of hydrocarbon in the form
of natural gas and crude oil. Saudi Arabia has the largest reserves of oil in
the whole world and is also the largest oil producer. The United Arab Emirates
is a significant producer of oil with fifth-largest oil reserves in the globe. Oman
and Qatar are also significant producers of natural gas and oil. Among the
nations of GCC, Bahrain is the one with comparatively small resources of oil
and gas.
In spite of having a substantial
reserve of gas and oil, energy deficits have risen among the nations of GVV. Bahrain,
UAE, and Kuwait have plans of importing gas from Qatar, Iraq, and Iran.
Therefore, it can be said that even though they have sufficient resources of
oil and gas, they still face issues like electricity and water shortage. These are
the serious concerns which are faced by GCCIA. In order to counter these
issues, solutions require financial reports but they are lacking in the sector
of non-profit organizations
Pricing,
Financial, and Contractual Arrangements of Gulf Cooperation Council
The contractual and legal framework
governing the schemes to resolve the issues described above is still being
developed. The GA or general agreement is signed among ministers in each of the
states and high-level relationships are governed among the member countries
with respect to the scheme. The General Assembly and GCCIA board will issue
regulations and rules governing the operations of GCCIA and participating
utilities from the states of GCC. The PETA or Power Exchange and Trading
Agreement is the prime document which governs user and access to the trading
rights and interconnector obligations among participants. The participating
entities have signed the agreement which varies in accordance with the
framework of the power sector in each of the member state
·
Obligations for
maintaining a minimum capacity of generation
·
Allocation of the capacity
of interconnector transmission
·
Energy trade
·
Different ancillary
services
·
Pricing and allocation
of interconnector rights
·
Management of
unscheduled energy transfers
Problem
Statement Gulf Cooperation Council
Non-profit
organizations are old institutions which contributes to economic development. At
present, the function of non-profit organizations is actually not limited to a
specific boundary of a nation. The scope of non-profit organizations has
increased significantly and globalization has a major part in it. It is not
necessary for an NGO to operate in the country in which it wishes to work. For
instance, an NGO can easily be based in another country and contribute to the
economic development of another nation. In Bangladesh, BRAC is recognized as
the oldest non-profit organization. The same can be said about GCCIA.
Generally, their financial reporting is different and also specialized in
nature. Because of this unique nature, the reporting system and accounting
practice of non-profit organizations including GCCIA are not that clear. There
are not many studies which have been conducted to resolve this issue. This
complexity is still prevalent
In non-profit organizations and not significant work has been
carried out to decrease this complexity. There are various exceptional and complicated
laws associated with the activities of non-profit organizations
In the
account books of non-profit organizations, there is no IFRS/IAS for managing
them. The policy, procedure, and accounting system of non-profit organizations
are different compared to commercial systems. When these systems are not clear,
it becomes difficult for the administrators of non-profit organizations to
formulate plans for different projects. For instance, if there is any project
that depends on the financial status of the organization, they cannot
contemplate whether it can be completed or not.
When a
project plan is not formulated efficiently, the probability of its success is
quite low. In the commercial worlds, it is recognized that non-profit
organizations are unable to carry out any project which requires a high
investment. For such projects, it is important for them to have an annual
financial report developed for planning. GCCIA is an entity that is operating
at a large scale and is also a non-profit organization. Similar to other
non-profit organizations, it also doesn’t support a financial report. In this
research, the focus is upon the development of the financial reporting system
for GCCIA which is financially sustainable
Non-profit organizations
face an issue of accounting complexity. Due to it, they are unable to work
efficiently on projects. Whenever they need to operate on projects at a large
scale, they require proper financial information. This paper will create a financial
reporting style for non-profit organizations like GCCIA. The focus will be upon
the development of a financial sustainable reporting style.
Basically, the written
records of the financial situation of an organization are financial statements.
They consist of standard reports including statement of cash flow, loss and
profit statement, and balance sheet. They are one of the more important
components of information about a business and as the prime technique of
communicating reliable financial information about a specific entity to
different outside parties. Financial statements, in a technical sense, are a
summation of an organization’s financial position at a specific time. Normally,
they are created for meeting the requirements of diverse users, particularly
creditors and owners. These statements are developed from aggregating,
condensing, and simplifying data masses acquired from the accounting system of
a firm whether it is non-profit or not
Financial Reporting of Gulf
Cooperation Council
In accordance with the
Financial Board of Accounting Standards, financial reporting seems to include
financial statements along with other sources of exchanging financial
information of an organization to its users. Information is provided by
financial statements which is useful in credit decisions and investment, and in
analyzing the prospects of cash flow. Information is provided by them about the
resources of an organization and changes in them. The concept of financial
reporting is broad and encompasses financial statements, supplementary
information, notes to parenthetical disclosures and financial statements, and
other sources of financial reporting including applications to stockholders,
management analysis, and discussions. It can be said that financial reporting
is an information source offered by them who are responsible for making decisions
about the organization. The basic objective of financial reporting is clear
information and data about components and earnings. Information and data about
earnings on the basis of accrual accounting normally offers a better indication
of capability of an organization to create beneficial cash flows than that
provided by payments and cash receipts.
Major Financial
Statements of Gulf Cooperation Council
The fundamental financial
statements of an organization consist of a balance sheet (financial position
statement), change statement in the equity of the owner, statement of cash
flow, and income statement. The balance sheet seems to offer an entity’s
snapshot in accordance with a specific date. It lists the liabilities and
assets of the organization and in terms of a non-profit organization, they are
sufficient. The income statement has the objective of presenting an overview of
net loss, net income, losses, expenses, gains, or revenues of an organization
for a certain period. It is similar to a dynamic picture of the operations of
an organization during that time. The statement of cash flow summarizes the
cash payments and cash receipts relating to its financing, investing, and
operating activities during a specific period. Meanwhile, a statement of
changes in the equity of owner reconciles the starting of an enterprise’s
period equity with its ending balance.
In financial statements,
items reported are evaluated by different attributes such as the current value
of market and current cost etc. Historical cost is the typical source of
presenting liabilities and assets. It can be said that notes to different
financial statements are informative disclosures which are appended to
financial statements’ end. They offer significant information regarding matters
like inventory and depreciation methods utilized etc. Notes are recognized as
an important part of all financial statements. Parenthetical disclosures and
schedules are also utilized for presenting information which is not offered
elsewhere in the available financial statements
There is a heading in
each and every financial statement which offers the name of the organization,
the statement name, and the time or data which was covered by the statement. In
financial statements, the provided information is financial in nature and is
also expressed in money units. In addition to it, the information related to an
individual organization. Often, the information is the product of estimates and
approximations, instead of exact evaluations and measurements. Typically,
financial statements reflect the prevalent financial effects of events and
transactions which have already occurred.
Financial statements
which are presenting financial facts and data for more than two periods are
referred to as comparative statements. Such statements normally offer similar
reports for the present period and for more than one preceding periods. Analysts are provided with important
information and data about relationships and trends over 2 or more than two
years. Normally, comparatively, statements are more important than
statements of single-year. The fact is emphasized by comparative statements
that financial statements for an individual period of accounting are only an
individual part of the organization’s continuous history.
Meanwhile, interim
statements are reports which cover a duration of less than twelve months. The
objective of these statements is concerned with improvement of the accounting
information’s timeliness. Comprehensive statements are issued by some
organizations while some issue statements covering only a summary. Each and
every interim period must be viewed as an important part of the twelve-month
period and must continue to utilize the GAAP or generally accepted accounting
principles which were utilized in the preparation of the annual report of the
organization. Often financial statements are audited by accountants for the
objective of raising user confidence in their accuracy or reliability. All
financial statements are created on the basis of various assumptions of
accounting: that transactions can be measured or expressed in the form of
dollars; that the organization will be consistent in indefinite business; and
the preparation of statements will occur at regular intervals. The foundation
for the financial accounting practice’s structure is provided by these
assumptions.
It is important for
financial statements to be developed in accordance with the accounting
principles that are accepted, and must involve a description of the accounting
policies and procedures of the organization. Standard principles of accounting call for the
measurement of liabilities and assets at cost; the revenue recognition when it
is determined and when a transaction has occurred, and expense recognition in
accordance with the matching principle. Standard principles of accounting further need
that risks and uncertainties associated with an organization be reflected in
its reports of accounting and that, anything that would be important for an
investor must be disclosed in the statements
Elements of Accounting Feasibility of GCCIA That How a Financial
Report Can be generated
The FASB or Financial Board of Accounting Standards has
described the given components of financial statements of organizations whether
they are for-profit or not: comprehensive income, owner distribution, owner
investment, losses, gains, expenses, revenues, equity, liability, and assets.
In accordance with the board, the components of financial statements are the
base on which financial statements are developed. Following are the definitions
of elements:
Subsequent Events of Accounting Feasibility of GCCIA That How a
Financial Report Can be generated
In the terminology of
accounting, a subsequent event is actually a significant event occurring
between the data of balance sheet and the issuance date of the annual report. These
events have a material impact on the financial statements. A note of subsequent
event has to be issued with the available financial statements if events are
considered significant enough that without such type of information, the
financial statement would be considered misleading. The recording and
recognition of these events need the professional judgment of an external
auditor or accountant. Events which influence financial statements at the
balance sheet data might unveil an unrecognized condition or offer information
concerning judgments or estimates. These events might be reported with the
adjustment of financial statements for recognizing new evidence. And events
relating to conditions which didn’t exist on the data of balance sheet but
emerged subsequent to it don’t need an adjustment to the statements. However,
the impact of the event on the upcoming period might be of significance that it
must be disclosed where possible.
PERSONAL FINANCIAL STATEMENTS of Accounting Feasibility of GCCIA That How a
Financial Report Can be generated
Personal financial
statements’ reporting entity is an individual. These types of statements of
normally created for dealing with acquiring bank loans, public disclosure of
affairs, estate and gift planning, retirement planning, and planning of income
tax. For each and every reporting organization, financial position’s statement
is needed. Assets are presented by statements at predicted current values, net
worth, the present amount of cash settlement, and liabilities at the discounted
cash amount. It is important for a provision to be formulated for measured
income taxes on all the difference among the predicted asset values. Comparative
statements for an individual or more than one period must be presented. Meanwhile,
a change statement in net worth is not compulsory
Development Stage Organizations of Accounting Feasibility of GCCIA That How a
Financial Report Can be generated
An organization is
recognized as a development stage organization if all of its time and efforts
are invested in the establishment of a new business and either of the given
exists: 1) different principal operations are not functioning or haven’t begun,
or 2) these operations have started but the revenue is nonexistent. Development
stage organization’s activities normally involve market development, personnel
training and recruiting, development and research, raising capital, and
financial planning.
A development stage
organization has to follow generally accepted principles of accounting
applicable to the operating organization in the financial statement
preparation. In the balance sheet, cumulative overall losses must be reported
by the organization in the section of equity. In the section of the income
statement, cumulative expenses and revenues should be reported from the
enterprise inception. Similarly, in the statement of cash flow, cumulative cash
flows should be reported. The statement must be capable of identifying the
organization as an organization at a development stage while describing the
nature of its activities. During the period of normal and general functions,
the organization has to disclose its former status in the section of notes in
the financial statements.
Fraudulent Financial Reporting of Accounting Feasibility of GCCIA That How a
Financial Report Can be generated
This kind of financial
reporting is simplified as reckless or international reporting, whether by
omission or just by the act, which results in misleading statements. These
statements are not beneficial for an organization, especially for a non-profit
organization that has low revenues. It can be normally traced to the presence
of conditions in either the external environment of the organization or
internal environment. Inefficient practices in both of the environment can lead
to this kind of reporting. Immense pressure on the department of management,
like performance goals or unrealistic profit, can also lead to this kind of
reporting
The legal requirements
and guidelines for publicly traded organizations when it comes to financial
reporting are tougher than for different private or for-profit organization. And they seemed to become tougher in
2002 when the Act of Sarbanes-Oxley was passed. It was passed in when bankruptcy was filed in
2001 and subsequent revelations were made in the organization. Enron was
seemingly the first one in the chain of bankruptcies at a high-level. Accounting
fraud’s serious allegations extended and followed beyond the bankrupt
organizations to their firms of accounting. The legislature acted in a quick
manner for fortifying the requirements of financial reporting and stemming the
decrement in confidence which resulted from bankruptcies. In the absence of a non-profit
organization, the stock exchange cannot exist for a longer period of time. The
act is quite complicated which imposes heavy requirements of reporting on all
non-profit organizations. Meeting the requirements and guidelines of this law
has seemingly raised the auditing organizations’ workload. Particularly, the Sarbanes-Oxley
Act’s Section 404 needs that the annual report and financial statements of the
organization involve an official written document by management concerned with
the efficiency of the internal controls of the organization. In addition, this
section needs that external auditors are attesting to the report of management
on internal controls. Private organizations aren’t covered by the act of
Sarbanes-Oxley. But it is suggested by analysts that even private organizations
must be aware of this regulation and law as it has affected the business
expectations and accounting practices.
Auditing
of
Accounting Feasibility of GCCIA That How a Financial Report Can be generated
The presentation and
preparation of financial statements of the organization are the accountability
of the organization management. An independent public accountant might audit
the published statements. In the case of a non-profit organization, the law requires
an audit. That is yet another reason why GCCIA seems to need audit. For private
organization, an audit is not required, though other lenders and banks need an
independent check as a part of different lending agreements. The auditor,
during an auditor, carried out an evaluation of the financial statements,
internal controls, records, and accounting system according to the accepted
standards of auditing. Then an opinion is expressed by the auditor regarding
the financial statements’ fairness in conformity with accepted principles of
accounting. Following are the four possible opinions:
Unqualified opinion means that materials
were prevalent, determined to be in order, and seemed to meet all requirements
of auditing. It is actually the most beneficial or favourable opinion which an
external auditor can render about the records and operations of the
organization. In some of the cases, an unqualified opinion might be received by
an organization with the addition of explanatory language. Circumstances might
need an auditor to add a paragraph for explanation to the report. When this is
carried out, the term is prefaced with the opinion, "explanatory language
has been added."
Qualified opinion is actually a type of
opinion which is utilized for various instances in which the majority of
financial materials of the organization were in order.
Adverse opinion is actually an adverse
opinion stating that different financial statements don’t completely or
accurately represent the financial position of an organization, cash flows in
conformity with accepted principles of accounting, and outcomes of operations. For
an organization being audited, this type of opinion is not a good option.
Disclaimer of opinion explains that an opinion
is not expressed by an auditor on the present financial statements, normally
because she or he feels that the organization didn’t provide sufficient
information. Then again, an unfavourable light is casted by the opinion on the
audited business.
The standard opinion of the auditor normally involves the following
statements:
The financial statements
are actually the responsibility of the management of the organization; the
audit was carried out in accordance with the accepted standards of auditing;
the audit was performed and planned for obtaining reasonable assurance that all
the statements don’t have material misstatements, and a reasonable basis was
provided by the audit for an opinion expression regarding the fair presentation
of audits. Then the audit report is signed by the organization’s principal and
auditor before being dated. This is the normal structure of financial reporting
for an organization.
Scope of the Study of
Accounting Feasibility of GCCIA That How a Financial Report Can be generated
This study is focusing on the issue
of the absence of financial reporting in GCCIA. Similar to other non-profit
organizations, GCCIA doesn’t have a sufficient system of financial reporting
and due to it, various projects at a large-scale are not planned effectively. With
proper financial reporting system, an organization is able to function in a
more effective manner. In this paper, a structure of financial reporting will
be proposed which is financially sustainable in terms of the GCCIA
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