NOTES TO THE ANNUAL ACCOUNTS 2017
These are the annual accounts of Stichting War Child, registered in the Netherlands and recognised as an ANBI (Algemeen Nut Beogende Instelling) by the Dutch tax authorities. War Child is located in Amsterdam at the Helmholzstraat 61-G. All War Child's country offices are one and the same legal entity worldwide: a foundation (Stichting) under Dutch law.
War Child is active as an international non-governmental organisation (iNGO) supporting children affected by armed conflict. War Child empowers children and young people while enabling adults to bring about positive and lasting changes in the lives of conflict-affected children and young people. War Child supports children regardless of their religious, ethnic or social backgrounds or gender. In 2017, War Child implemented its projects in Afghanistan, Burundi, Central African Republic, Colombia, Democratic Republic of Congo, Iraq, Jordan, Lebanon, occupied Palestinian territories, Republic of South Sudan, Sri Lanka, Sudan, Syria, Uganda and The Netherlands. War Child’s activities are carried out by its own staff in programme countries and by implementing partners or local organisations.
War Child’s vision is: “Children do not belong in war. Ever. They have the right to grow up free from fear and violence. To develop their full potential and become the person they want to be. Together we can change the future.”
The annual accounts 2017 are dated 20 April 2018 and form an integral part of War Child’s annual report. The annual report gives a detailed account of War Child’s activities, results and programmes. The annual accounts have been prepared in accordance with the revised Guideline RJ650, which applies to Dutch fundraising organisations. The accounting policies have been consistently applied to all the years presented.
War Child’s financial year coincides with the calendar year. The statement of income and expenses 2017 is based on the period from 1-1-2017 to 31-12-2017.
The valuation of assets and liabilities and of income and expenses is based on historical cost.
The assumption of continuity was applied for the preparation of the annual accounts.
When necessary comparative figures in the notes to the financial statements have been adjusted to conform to changes in presentation in the current year.
Adjustment in accounting principles
In the balance sheet and in the notes to the balance sheet, some amounts of 2016 have been adjusted for reasons of comparison with 2017. This relates to adjustments in the general reserves and the receivables, as a result of the revision of the accounting guideline RJ650. Up to 2017, income from lotteries was recognized in the period when the contribution was received. Under the revised accounting guideline RJ650, income recognition takes place in the period when the contribution from lotteries is committed. In conformity with the new RJ650, the contribution of €1.35M from the National Postcode Lottery related to 2017, that is received by War Child in 2018, is recognized as a receivable from donors as per the balance sheet date of 2017. For reasons of comparison, the comparative figures of 2016 have been adjusted, meaning that the 2016 contribution of €1.35M from the National Postcode Lottery, that was received in 2017 , has been added to the receivables at the balance sheet date of end 2016. The additional surplus has been added directly to the reserves. As a result, the general reserve as per the balance sheet date of 2016 is €1.35M higher than ending balance of the general reserves as presented in the annual accounts 2016.
Items included in the financial statements of War Child's country offices are measured in Euro. The financial statements of the legal entity are presented in Euro, which is the functional and presentation currency of War Child.
Transactions in foreign currencies
At initial recognition, transactions denominated in a foreign currency are translated into euros, the functional currency of War Child, at the exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date into euros at the exchange rate of that date. Exchange differences resulting from the settlement of monetary items, or resulting from the translation of monetary items denominated in foreign currency, are recognised in the statement of income and expenses in the period in which the exchange difference arises.
Non-monetary assets and liabilities denominated in foreign currency that are measured based on historical cost, are translated into euros at the exchange rates at the date of the transactions.
The preparation of the financial statements in conformity with the relevant rules requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. If necessary and relevant, the nature of these estimates and judgements, including the related assumptions, is disclosed in the notes to the financial statement item. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. According to management, the following items are most relevant for War Child's financial position and require estimates: the valuation of legacies to be received, the valuation of some gifts in kind, the fundraising and awareness raising components in mixed activities, the allocation of general support expenses to the RJ650 expense categories and the amount of provisions.
Accounting Principles – Balance Sheet
Unless stated otherwise, assets and liabilities are shown at historical costs.
An asset is recognised in the balance sheet when it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. A liability is recognised in the balance sheet when it is expected to result in an outflow from the entity of resources embodying economic benefits and the amount of the obligation can be measured with sufficient reliability.
Income is recognised in the statement of income and expenses when an increase in future economic potential related to an increase in an asset or a decrease of a liability has arisen, the size of which can be measured reliably. Expenses are recognised when a decrease in the economic potential related to a decrease in an asset or an increase of a liability has arisen, the size of which can be measured with sufficient reliability.
An asset or liability that is recognised in the balance sheet, remains recognised on the balance sheet if a transaction (with respect to the asset or liability) does not lead to a major change in the economic reality with respect to the asset or liability. Such transactions will not result in the recognition of results. When assessing whether there is a significant change in the economic circumstances, the economic benefits and risks that are likely to occur in practice are taken into account. The benefits and risks that are not reasonably expected to occur, are not taken into account in this assessment.
An asset or liability is no longer recognised in the balance sheet, and thus derecognised, when a transaction results in all or substantially all rights to economic benefits and all or substantially all of the risks related to the asset or liability are transferred to a third party. In such cases, the results of the transaction are directly recognised in the statement of income and expenses, taking into account any provisions related to the transaction.
Income and expenses are allocated to the respective period to which they relate.
Financial instruments include investments in shares and bonds, trade and other receivables, cash items, loans and other financing commitments, derivative financial instruments, trade payables and other amounts payable. The financial statements contain the following financial instruments: cash items, receivables and payables.
War Child does not apply nor trade in financial derivatives, such as interest rate swaps, forward exchange contracts or options to control its risks.
Financial assets and liabilities are recognised in the balance sheet at the moment that the contractual risks or rewards with respect to that financial instrument originate. Financial instruments are derecognised if a transaction results in a considerate part of the contractual risks or rewards with respect to that financial instrument being transferred to a third party.
Financial instruments (and individual components of financial instruments) are presented in the financial statements in accordance with the legal reality of the contractual terms. Presentation of the financial instruments is based on the individual components of financial instruments as a financial asset, financial liability or equity instrument.
Financial instruments are initially stated at fair value, including discount or premium and directly attributable transaction costs. However, if financial instruments are subsequently measured at fair value through profit and loss, then directly attributable transaction costs are directly recognised in the profit and loss account.
For the principles applying to the primary financial instruments, please refer to the treatment of each relevant balance sheet item.
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of one or more events that occurred after the initial recognition of the asset, with negative impact on the estimated future cash flows of that asset, which can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognised in the statement of income and expenses and reflected in an allowance account against loans and receivables or investment securities held to maturity. Interest on the impaired asset continues to be recognised by using the asset's original effective interest rate.
When, in a subsequent period, the amount of an impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the decrease in impairment loss is reversed (up to the amount of the original cost).
Offsetting financial instruments
A financial asset and a financial liability are offset when the entity has a legally enforceable right to set off the financial asset and financial liability and the Company has the firm intention to settle the balance on a net basis, or to settle the asset and the liability simultaneously. If there is a transfer of a financial asset that does not qualify for derecognition in the balance sheet, the transferred asset and the associated liability are not offset.’
Intangible fixed assets
Intangible fixed assets are only recognised in the balance sheet when it is probable that the expected future economic benefits that are attributable to the asset will flow to War Child and the cost of that asset can be measured reliably. Intangible fixed assets are measured at acquisition cost, less accumulated amortisation and impairment losses. The accounting principles for the determination and recognition of impairments are included under the section Impairments of fixed assets.
Tangible fixed assets
Tangible fixed assets are measured at cost, less accumulated depreciation and impairment losses. The cost consists of the price of acquisition, plus other costs that are necessary to get the assets to their location and condition for their intended use. Depreciation is recognised as an expense on a straight-line basis over the estimated useful lives of each item of the tangible fixed assets, taking into account the residual value of each asset. Depreciation starts as soon as the asset is available for its intended use, and ends at decommissioning or divestment. The following depreciation percentages are applied:
Cars, office furniture and fittings: 33%
ICT equipment: 33%
Assets in project countries: 20-33%
Maintenance expenditures are only capitalised when the maintenance leads to extension of the useful life of the asset.
Impairment of fixed assets
For tangible fixed assets, an assessment is made as of the balance sheet date as to whether there are indications that the asset is subject to impairment. If indications exist that the asset item is subject to impairment, the recoverable amount of the asset is determined. An asset is subject to impairment if its carrying amount exceeds its recoverable amount; the recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. An impairment loss is directly expensed in the statement of income and expenses. If it is established that a previously recognised impairment loss no longer applies or has declined, the increased carrying amount of the assets in question is not set any higher than the carrying amount that would have been determined had no asset impairment been recognised.
Disposal of fixed assets
Assets that are taken out of service are stated at the lower of book value or net realisable value.
Receivables are carried at amortised cost on the basis of the effective interest method, less impairment losses. The effective interest and impairment losses, if any, are directly recognised in the statement of income and expenses.
Cash and cash equivalents
Cash and cash equivalents include cash-in-hand, bank balances and deposits held at call with maturities of less than 12 months. Cash and cash equivalents are stated at nominal value. War Child does not have any borrowings or loans. War Child does not invest its funds other than in savings accounts and deposits.
Cash and cash equivalents denominated in foreign currencies are translated at the balance sheet date in euros at the exchange rate ruling at that date. Reference is made to the accounting policies for foreign currencies.
Reserves and funds
The additions to and the withdrawals from the reserves and funds take place from the destination of results. In 2017, a direct addition to the continuity reserves took place, related to the recognition of income from lotteries which was revised in the guideline RJ650. War Child added one year of structural contribution from the National Postcode Lottery (€ 1.35 million) directly to the continuity reserve against a receivable from donors.
The continuity reserve is in place to enable War Child to meet its obligations in the long-term, in case of stagnated income or after an incident with an impact on expenses. The target level is determined by the Supervisory Board. For further explanation, see the notes to the balance sheet.
This part of the reserves is freely available to be spent in accordance with War Child’s objective.
The earmarked reserves are related to funds earmarked by the Supervisory Board to be spent on a designated purpose. The earmarked reserves do not reflect an obligation towards any third party and the Supervisory Board has the authority to reverse this reserve. The earmarked reserves are (partly) released against the statement of income and expenses in the financial period of recognition of the expenses on the designated purpose, for the amount spent.
The earmarked funds are related to funds earmarked by external donors to be spent on a designated purpose. The earmarked funds are (partly) released against the statement of income and expenses in the financial period of recognition of the expenses on the designated purpose, for the amount spent.
A provision is recognised when the foundation has a legal or constructive obligation, arising from a past event, the amount can be estimated reliably and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Provisions are stated at the nominal value of the expenses that are expected to be required to settle the liabilities and losses.
Provision for end of service benefits
A provision for end of service benefits is established when War Child has the obligation by local labour law to pay an amount of benefits to each of its employees at the end of their service, no matter how and by whom the employment contract was ended. The provision represents the cumulative amount of benefits built up by each employee up to the balance sheet date.
Provision for local taxation
A provision for local taxation is established when local taxation laws and regulations contain, or are expected to contain, a tax obligation related to salaries paid to staff residing in the country, although the authorities have not (yet) imposed those taxes on War Child or on non-governmental organisations in general and the exact method of calculation to be applied is uncertain. The provision represents the best estimate of the amount of tax that will be imposed.
Provision for local social security
This provision is similar to the provision for local taxation. In some countries a law exists for employers to provide social security to its staff. As long as the governments have not yet set up an authority in charge of collecting those payments, War Child keeps a provision for its best estimate of the amount to be paid.
Provision for ineligible grant expenses
This provision is related to expenses that might need to be paid back to institutional donors because some of their requirements were not met. The amount that is estimated to be at risk of repayment to the donor is provided for.
Provision for claims, disputes and lawsuits
A provision for claims, disputes and lawsuits is established when it is expected that War Child will be sentenced in legal proceedings. The provision represents the best estimate of the amount for which the claim can be settled, including the costs of litigation.
Liabilities and other financial commitments are measured after their initial recognition at amortised cost on the basis of the effective interest rate method. The effective interest is directly recorded in the statement of income and expenses. Liabilities related to operational obligations to donors and partners are presented under short term liabilities, except those that are due or expected to be due after one year, which are presented under long term liabilities.
Accounting Principles – Income and Expenses
Income from individuals
Donations are accounted for as income in the earliest reporting period that they were received or committed to. Legacies are accounted for as soon as the amount of income for War Child can be reliably estimated.
Income from companies
Donations from companies are accounted for as income in the earliest reporting period that they were received or committed to. Grants from companies with a pay-back obligation are recognized as income in the same reporting period in which the subsidised eligible expense is recognised.
Gifts in kind are recognised as income and expense in the period they are received. Gifts in kind are valued as income and expense at the fair value.
Income from lotteries
Unrestricted income from lotteries is recognized in the period that the donor commits the funds. Grants from lotteries with a pay-back obligation are recognized as income in the same reporting period in which the subsidised eligible expense is recognised.
Income from governments
Grants received with a designated purpose and a pay-back obligation for War Child in case of ineligibility of the related expenses, are accounted for as income in the same reporting period in which the subsidised eligible expense is recognised. Grants from international (multi-) governmental agencies, such as organisations related to the the United Nations and the European Commission, are classified as income from governments. Grants from governments that are sub-awarded to War Child by another organisation under the same conditions are classified as grants from governments (the back-donor principle). Instalments received are recognised in the balance sheet as liabilities.
Income from other organisations
Grants received from other organisations with a designated purpose and a pay-back obligation for War Child in case of ineligibility of the related expenses, are accounted for as income in the same reporting period in which the subsidised eligible expense is recognised. Donations from other organisations are recognised as income in the earliest period that those grants are received or committed, if there are no conditions associated with the donation.
Interest income is recognised in the statement of income and expenses on an accrual basis, using the effective interest rate method.
War Child may enter into finance and operating leases. A lease agreement under which the risks and rewards of ownership of the leased object are carried entirely or almost entirely by the lessee are classified as finance leases. All other leases are classified as operating leases. For the lease classification, the economic substance of the transaction is conclusive rather than the legal form. At inception of an arrangement, War Child assesses whether the lease classifies as a finance or operating lease.
If War Child acts as lessee in an operating lease, the leased property is not capitalised. Benefits received as an incentive to enter into an agreement are recognised as a reduction of rental expense over the lease term. Lease payments and benefits regarding operating leases are recognised to the statement of income and expenses on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the benefits from the use of the leased asset.
Employee benefits are charged to the statement of income and expenses in the period in which the employee services are rendered and, to the extent not already paid, as a liability on the balance sheet. If the amount already paid exceeds the benefits owed, the excess is recognised as a current asset to the extent that there will be a reimbursement by the employees or a reduction in future payments by War Child.
Termination benefits are employee benefits provided in exchange for the termination of the employment. A termination benefit is recognised as a liability and an expense when the foundation is demonstrably and unconditionally committed to make the payment of the benefit. If the termination is part of a restructuring, the costs of the termination benefits as part of the restructuring provision.
Termination benefits are measured in accordance with their nature. When the termination benefit is an enhancement to post-employment benefits, measurement is done according to the same policies as applied to post-employment plans. Other termination benefits are measured at the best estimate of the expenditures required to settle the liability.
The pension charge to be recognised for the reporting period equals the pension contributions payable to the pension fund over the period. In so far as the payable contributions have not yet been paid as at balance sheet date, a liability is recognised. If the contributions already paid exceed the payable contributions as at balance sheet date, a receivable is recognised to account for any repayment by the fund or settlement with contributions payable in future.
In addition, a provision is included as at balance sheet date for existing additional commitments to the fund and the employees, provided that it is likely that there will be an outflow of funds for the settlement of the commitments and it is possible to reliably estimate the amount of the commitments. The existence or non-existence of additional commitments is assessed on the basis of the administration agreement concluded with the fund, the pension agreement with the staff and other (explicit or implicit) commitments to staff. The provision is stated at the best estimate of the present value of the anticipated costs of settling the commitments as at balance sheet date.
For any surplus at the pension fund as at balance sheet date, a receivable is recognised if War Child has the power to withdraw this surplus, if it is likely that the surplus will flow to War Child and if the receivable can be reliably determined.
Determination of fair value
The fair value of a financial instrument is the amount for which an asset can be sold or a liability settled, involving parties who are well informed regarding the matter, willing to enter into a transaction and are independent from each other. The fair value of non-listed financial instruments is determined by discounting the expected cash flows to their present value, applying a discount rate that is equal to the current risk-free market interest rate for the remaining term, plus credit and liquidity surcharges.
Events that provide further information on the actual situation at the balance sheet date and that appear before the financial statements are being prepared, are recognised in the financial statements.
Events that provide no information on the actual situation at the balance sheet date are not recognised in the financial statements. When those events are relevant for the economic decisions of users of the financial statements, the nature and the estimated financial effects of the events are disclosed in the financial statements.