ACCOUNTING AND FINANCIAL GOVERNANCE. Foundations declared to be of public interest. A world different from for-profit companies.

EAS LATAM

3 hours ago

7 min read

By Lida. Ivette Campos Salazar, CPA

EAS LATAM Group

In recent years, many foundations declared to be of public interest in Costa Rica have assumed an important role in the delivery of social programs. Some manage resources from the Social Protection Board, donations, or public transfers, making it necessary to present their financial information in a clear and understandable manner.

Even a purchase as common as a vehicle, equipment, furniture, or an improvement to operate raises accounting questions worth reviewing carefully: how it was financed, what the Board approved, what conditions the agreement had, and how the acquired asset should be presented.

This article aims to contribute to that conversation from a practical perspective. It's not about complicating the issue, but about clarifying concepts: a reserve is not an expense, an asset must be disclosed when it exists, and when funds are public, traceability helps to tell a more accurate financial story.

Reservation as an internal decision

When the Board of Directors sets aside a portion of the surplus for future investment, it typically makes an internal designation within the equity. This designation indicates that those funds have a specific purpose.

That decision must be documented: Board agreement, amount, purpose, term, and relationship to the work plan. The reserve does not replace the accounting record of the purchase nor does it eliminate the conditions of the funds if they come from the JPS, another public institution, or a conditional donation.

A reserve without backing, purpose, or follow-up can create confusion. The important thing is that any reader understands what the foundation decided, why it made that decision, and how it implemented it.

If an asset exists, it must be shown.

IAS 16 governs the treatment of property, plant, and equipment. Simply put, if an asset will be used for more than one period and meets the recognition criteria, it should be recorded as an asset at cost.

This means that when a vehicle, piece of equipment, or capital improvement is purchased, cash decreases and property, plant, and equipment increases. The purchase is not directly offset against reserves.

Recording the purchase only against equity—for example, “reserve against banks”—may seem like a simple solution, but it omits an important element: the asset exists and the entity controls it. It also limits the understanding of depreciation and the use of the investment.

Not every improvement is capitalized

The terminology used in the budget does not, by itself, define the accounting treatment. An expansion that increases a building's capacity or the replacement of a significant component may be considered an investment. In contrast, a minor repair, routine painting, or preventive maintenance is usually recognized as an expense in the period.

Therefore, a project financed with a CAPEX reserve—investments in assets—may contain items that are capitalized and others that must be recognized directly in earnings. The classification depends on the nature of each disbursement, not on the source of funding.

What to do with the reservation afterwards

Once the objective is met, the reserve can be released or reclassified within equity. This movement is not income and does not modify the cost of the asset. The investment is already recognized as property, plant, and equipment.

IFRS does not require that an internal reserve be reduced at the same rate as depreciation. However, the policy adopted must be clear, consistent, and understandable to those who read the financial statements.

Depreciation still applies

Depreciation represents the consumption of an asset during the periods in which it helps fulfill the entity's mission. Therefore, a vehicle acquired with accumulated surpluses, donated equipment, or an improvement financed with public funds remains subject to depreciation.

The source of money explains how the investment was financed; it does not eliminate wear and tear, obsolescence, or loss of service capacity of the asset.

Public funds: greater traceability

When investment is financed with public resources—for example, funds from the Social Protection Board—the analysis requires greater care. These are public resources managed by a private entity, with a social purpose, budget, controls, and accountability.

The Comptroller General's Office maintains technical standards for the transfer of public funds to private entities. Within this framework, the resources retain their public nature and require traceability: budgeting, authorization, execution, settlement, and evidence of the funds' use.

In practice, the foundation must be able to link these elements: transfer received, agreement or program, segregated account where applicable, supplier, invoice, payment, asset acquired, location, use, and report submitted. This linking facilitates review and improves the quality of financial information.

This is relevant for foundations declared to be of public interest. Managing public funds is not the same as managing an unrestricted private donation. There must be sufficient traceability to demonstrate that the resources were used for the authorized purpose.

Private funds and public funds: what really changes

To compare both cases, it is helpful to separate two questions: what accounting framework has the foundation adopted, and what additional obligations arise from the source of the funds? An entity does not change from IAS 16 to Section 17 simply because it uses public or private funds. It must consistently apply the appropriate framework. Under full IFRS, the asset is analyzed using IAS 16 and, if there is a government grant, using IAS 20. Under the IFRS for SMEs, the relevant standards are Section 17 for property, plant and equipment and Section 24 for government grants.

The main difference, therefore, is not whether the asset should be recognized or depreciated: that applies in both cases when the applicable criteria are met. What changes is the level of traceability, control, and accountability. A private donation is accompanied by the agreement with the donor, internal policies, and the applicable audit. A public transfer adds the technical standards of the Comptroller General of the Republic, the authorized budget, the conditions of the granting entity, the liquidation process, and evidence of how the funds were used.

Aspect	Private resources or donations	Public funds or transfers
Accounting framework	The entity maintains the adopted framework: IAS 16 under full IFRS or Section 17 under the IFRS Standard for SMEs.	The asset is recognized under the same framework. If the transfer qualifies as a government grant, IAS 20 or Section 24 applies, as appropriate.
Assets and depreciation	The asset is recognized and depreciated when it meets the criteria. Any restrictions imposed by the donor must be considered.	The asset is also recognized and depreciated. In addition, the grant must be accounted for and compliance with the public conditions must be demonstrated.
Control and evidence	Donation agreement, internal approval, asset registration, policies, receipts and external audit where applicable.	Agreement or program, budget, separate identification, invoice, payment, location and use of the asset, settlement and regulations of the CGR and the granting entity.
Conclusion	The fact that resources are private does not eliminate the need for adequate control, recognition, and disclosure.	The fact that the resources are public does not change the asset standard; it adds a stricter regime of control and accountability.

This comparison avoids conflating two distinct issues. The source of funds determines the restrictions and the control framework; the accounting framework adopted determines which standard is used to recognize the asset and, where applicable, the grant.

The College recently opened the conversation

The Costa Rican Association of Public Accountants announced that it is evaluating the possible adoption of an International Accounting Standard for Nonprofit Entities. According to the published information, the purpose is to analyze a standard designed to help associations, foundations, and other social organizations present more comparable and useful financial statements for donors, public institutions, and the general public.

The news does not make that rule mandatory immediately. It does, however, confirm that the sector has its own particularities: restricted funds, conditional donations, public transfers, internal reserves, and accountability obligations.

Therefore, before delving into specific standards such as IAS 20, it is important to consider the underlying message: the sector needs financial information that explains not only how much money it received and spent, but also what restrictions it had, what assets it acquired, how it uses them, and how it is accountable for them.

Where do IAS 20 and Section 24 come in?

When the contribution received meets the definition of a government grant, IAS 20 allows two ways of presenting a grant related to assets: recognizing it as deferred income or deducting it from the carrying amount of the asset.

If the foundation applies the IFRS for SMEs Standard, the analysis is carried out under Section 24 and not under IAS 20. Both frameworks recognize the need to account for the grant, but they should not be mixed: the recognition policy and timing should be defined in accordance with the framework adopted by the entity.

Under the deferred revenue method, the entity recognizes the asset at its cost and presents the grant separately. It then recognizes that revenue gradually, in the periods in which it also records the depreciation of the asset.

This method can simplify explanations when public funds, agreements, usage restrictions, and accountability obligations are involved. The standard allows for alternatives, but the chosen policy must be clear, consistent, and understandable.

In a public interest foundation, maintaining reserves to purchase vehicles, renew equipment, or improve facilities can be an appropriate practice. The key is that the reserve is understood in conjunction with the acquired asset, the source of financing, and the applicable terms and conditions.

If a foundation receives funds from the JPS or another public entity and uses them to purchase an asset, the cash becomes an asset at the service of the funded program. This asset must be recorded, monitored, depreciated, and clearly explained.

Well-presented accounting helps demonstrate that the foundation acted in an orderly manner, used the funds for the authorized purpose, and can be held accountable. In entities that manage public resources, this clarity strengthens trust.

Literature

1. Costa Rican Institute of Public Accountants. “International Standards.” Section on the evaluation of the possible adoption of the International Accounting Standard for Not-for-Profit Entities. Accessed August 3, 2026. https://ccpa.or.cr/normativa-internacional/

2. IFRS Foundation. IAS 16, Property, Plant and Equipment, and supporting materials for its application. https://www.ifrs.org/supporting-implementation/supporting-materials-by-ifrs-standards/ias-16/

3. IFRS Foundation. IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. https://www.ifrs.org/issued-standards/list-of-standards/ias-20-accounting-for-government-grants-and-disclosure-of-government-assistance/

4. IFRS Foundation. IFRS Standard for SMEs, Sections 17, Property, Plant and Equipment, and 24, Government Grants; supporting materials for implementation. https://www.ifrs.org/supporting-implementation/2025-ifrs-for-smes-supporting-materials/

5. IFRS Foundation. IAS 8, Basis of Preparation of Financial Statements. https://www.ifrs.org/issued-standards/list-of-standards/ias-8-basis-of-preparation-of-financial-statements/

6. Attorney General's Office, Costa Rican Legal Information System. Law No. 5338, Foundations Law, Article 18. https://pgrweb.go.cr/scij/Busqueda/Normativa/Normas/nrm_articulo.aspx?nValor1=1&nValor2=2683&nValor3=116548&nValor5=13459¶m1=NRA

7. Office of the Comptroller General of the Republic. Technical Standards on the Budget of Patrimonial Benefits Granted Through Transfers from the Public Sector to Private Entities, Resolution R-DC-00122-2019. https://www.cgr.go.cr/05-tramites-ap-sujetos-priv.html

Note: This article is for informational purposes only. The accounting treatment should be assessed according to the framework adopted by each entity, the terms of the transfer or donation, and the specific circumstances of the transaction. The third edition of the IFRS for SMEs Standard was issued in 2025 and is effective for periods beginning on or after January 1, 2027, with early application permitted.