FORMATION & AUDIT OF NGO’s

23rd October, 2009East Delhi CA CPE Study CircleNIRC of ICAINew Delhi

CA SUDHIR VARMAFCA; CIA (USA)

Formation of NGO’s

Constituents

1. Trust - Registered document

2. Society - Registrar of Societies

3. Company - Sec. 25 of the Companies Act, 1956

Trust

1. No separate Act

2. Trust Deeds can be registered

3. Settler

4. Corpus

5. Trustees

6. Trust Deed

Trust Deed

1. On a stamp paper as per stamp duty payable on the corpus amount.

2. Must clearly and broadly define objects

3. Strength of Board of Trustees

4. Powers of the Trustees / remuneration / benefits

5. Broad guidelines for management of trust

6. On dissolution

Societies

Status

- Delhi / state

- All India

Societies

1. In state level at least 7 promoters (not blood related)

2. In all India level at least 8 promoters from 8 different states of India

Societies

1. Memorandum of Association

- name

- objects

- profits/benefits to promoters/board members

- dissolution clause

- subscribers

Societies

1. Rules & Regulations

- define rules of membership

- define rules for elections

- define powers, duties and responsibilities of

the board and each office bearer

- define broad parameters of governance

Societies

1. Registration

- covering letter in a file cover

- power of attorney

- affidavit from secretary / president

- NOC for registered office

- Memorandum of Association & Rules and

Regulations signed by each promoter on each

page

- proofs of addresses for all promoters

Societies

1. Certificate of Registration

2. Certified copies from Registrar of

- Memorandum of Association

- Rules & Regulations

Societies

1. Registrations

- PAN

- TAN

- u/s 12AA of Income Tax Act

- u/s 80G of Income Tax Act

- IEC code

- VAT

Societies

1. Establish bank account

2. Deposit membership fee

3. Start members register

Companies

1. Registration process as usual- apply for name of approval- apply for license to operate as a company

registered u/s 25 of the Companies Act 1956- after obtaining license submit papers for

incorporation- certificate of incorporation issued to mention that

the company is registered u/s 25 of the Companies Act 1956

Audit of NGO’s

Types of Audit

1. Transaction based audit2. System / Risk based audit3. Project based audit4. Donor based audit5. Efficiency audit6. Compliance / Statutory audit

- Income Tax - FCRA- Registering authority

Engagement

1. Appointment by appropriate authority

2. Engagement letter

3. Scope of audit

4. Reporting requirements

5. Fee

Audit approach

1. “Knowledge of business” objects ; activities

2. Audit objectives

3. Audit plan

4. Audit process

5. Resources

Transaction based audit System / Risk based audit Compliance / Statutory audit (as usual)

Project based audit

1. Understand activity under the project2. Budget for the project3. Separate bank account / books of accounts4. Direct revenues from the project

- grants - donations- revenue incomes

5. Direct project expenses – nature6. Allocation of expenses to projects7. Projects utilization certificates

Donor based audit

1. Donor sanction letter

2. Terms & Conditions

3. Budget

4. Reporting requirements

1. Corpus / Endowment fund

2. Unutilized Grants

3. Separate books of accounts for

- foreign grants

- local grants

- revenue

4. Accrual vs cash system of accounts

5. Receipts and payments accounts

Efficiency audit

1. Donors / Governing body / Trustees

2. Verification of expenses beyond accounting

3. External help of specialists

4. Common sense / matured judgment

5. Team leaders

Computerized Environment

1. Size of NGO / No. of transactions

2. Familiarity with software in use

3. Asses software controls

4. Use auditing softwares

5. Remain abreast with technology

Statutory Compliances

1. Income Tax Act

2. FCRA / FEMA / RBI

3. Registration laws

4. Labour laws

5. VAT / Service Tax

6. Commercial laws

7. Protection laws

8. General laws

Auditing and assurance standards

AAS1 Basic Principles Governing an AuditAAS2 Objectives and scope of the Audit

of Financial StatementsAAS3 DocumentationAAS4 The Auditor’s Responsibility to consider Fraud

and Error is an Audit of Financial StatementsAAS5 Audit EvidenceAAS6 Risk Assessments and Internal ControlAAS7 Relying Upon the work of an Internal AuditorAAS8 Audit PlanningAAS9 Using the Work of another Auditor

Auditing and assurance standards

AAS10 Using the Work of an ExpertAAS11 Representations by ManagementAAS12 Responsibility of Joint AuditorsAAS13 Audit MaterialityAAS14 Analytical ProceduresAAS15 Audit SamplingAAS16 Going ConcernAAS17 Quality Control for Audit WorkAAS18 Auditing of Accounting EstimatesAAS19 Subsequent EventsAAS20 Knowledge of the Business

Auditing and assurance standards

AAS21 Consideration of Laws and Regulations in an Audit of Financial Statements

AAS22 Initial Engagements – Opening BalancesAAS23 Related PartiesAAS24 Audit Considerations Relating to Entities Using

Service OrganizationsAAS25 ComparativesAAS26 Terms of Audit EngagementsAAS27 Communication of Audit Matters with Those

Charged with GovernanceAAS28 The Auditor’s report on Financial Statements

Auditing and assurance standards

AAS29 Audit in a Computer information Systems Environment

AAS30 External ConfirmationsAAS31 Engagements to Compile Financial InformationAAS32 Engagements to Perform Agreed – Upon

Procedures Regarding Financial StatementsAAS33 Engagements to Review Financial StatementsAAS34 Audit Evidence – Additional Consideration for

Specific ItemsAAS35 The Examination of Prospective Financial

Information

Q & AThank you

SUDHIR VARMA

FCA; CIA (USA)