FORMATION & AUDIT OF
NGO’s
23rd October, 2009
East Delhi CA CPE Study Circle
NIRC of ICAI
New Delhi
CA SUDHIR VARMA
FCA; CIA (USA)
Formation of NGO’s
Constituents
1.
2.
3.
Trust
- Registered document
Society
- Registrar of Societies
Company - Sec. 25 of the Companies Act, 1956
Trust
1.
2.
3.
4.
5.
6.
No separate Act
Trust Deeds can be registered
Settler
Corpus
Trustees
Trust Deed
Trust Deed
1.
2.
3.
4.
5.
6.
On a stamp paper as per stamp duty
payable on the corpus amount.
Must clearly and broadly define objects
Strength of Board of Trustees
Powers of the Trustees / remuneration /
benefits
Broad guidelines for management of trust
On dissolution
Societies
Status
- Delhi / state
- All India
Societies
1.
2.
In state level at least 7 promoters (not blood
related)
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.
2.
Certificate of Registration
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.
2.
3.
Establish bank account
Deposit membership fee
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.
2.
3.
4.
5.
6.
Transaction based audit
System / Risk based audit
Project based audit
Donor based audit
Efficiency audit
Compliance / Statutory audit
- Income Tax
- FCRA
- Registering authority
Engagement
1.
2.
3.
4.
5.
Appointment by appropriate authority
Engagement letter
Scope of audit
Reporting requirements
Fee
Audit approach
1.
2.
3.
4.
5.
“Knowledge of business” objects ; activities
Audit objectives
Audit plan
Audit process
Resources



Transaction based audit
System / Risk based audit
Compliance / Statutory audit (as usual)
Project based audit
1.
2.
3.
4.
5.
6.
7.
Understand activity under the project
Budget for the project
Separate bank account / books of accounts
Direct revenues from the project
- grants
- donations
- revenue incomes
Direct project expenses – nature
Allocation of expenses to projects
Projects utilization certificates
Donor based audit
1.
2.
3.
4.
Donor sanction letter
Terms & Conditions
Budget
Reporting requirements
1.
2.
3.
4.
5.
Corpus / Endowment fund
Unutilized Grants
Separate books of accounts for
- foreign grants
- local grants
- revenue
Accrual vs cash system of accounts
Receipts and payments accounts
Efficiency audit
1.
2.
3.
4.
5.
Donors / Governing body / Trustees
Verification of expenses beyond accounting
External help of specialists
Common sense / matured judgment
Team leaders
Computerized Environment
1.
2.
3.
4.
5.
Size of NGO / No. of transactions
Familiarity with software in use
Asses software controls
Use auditing softwares
Remain abreast with technology
Statutory Compliances
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
1.
Auditing and assurance standards
AAS1
AAS2
AAS3
AAS4
AAS5
AAS6
AAS7
AAS8
AAS9
Basic Principles Governing an Audit
Objectives and scope of the Audit
of Financial Statements
Documentation
The Auditor’s Responsibility to consider Fraud and
Error is an Audit of Financial Statements
Audit Evidence
Risk Assessments and Internal Control
Relying Upon the work of an Internal Auditor
Audit Planning
Using the Work of another Auditor
Auditing and assurance standards
AAS10
AAS11
AAS12
AAS13
AAS14
AAS15
AAS16
AAS17
AAS18
AAS19
AAS20
Using the Work of an Expert
Representations by Management
Responsibility of Joint Auditors
Audit Materiality
Analytical Procedures
Audit Sampling
Going Concern
Quality Control for Audit Work
Auditing of Accounting Estimates
Subsequent Events
Knowledge of the Business
Auditing and assurance standards
AAS21
AAS22
AAS23
AAS24
AAS25
AAS26
AAS27
AAS28
Consideration of Laws and Regulations in an
Audit of Financial Statements
Initial Engagements – Opening Balances
Related Parties
Audit Considerations Relating to Entities Using
Service Organizations
Comparatives
Terms of Audit Engagements
Communication of Audit Matters with Those
Charged with Governance
The Auditor’s report on Financial Statements
Auditing and assurance standards
AAS29
AAS30
AAS31
AAS32
AAS33
AAS34
AAS35
Audit in a Computer information Systems
Environment
External Confirmations
Engagements to Compile Financial Information
Engagements to Perform Agreed – Upon
Procedures Regarding Financial Statements
Engagements to Review Financial Statements
Audit Evidence – Additional Consideration for
Specific Items
The Examination of Prospective Financial
Information
Q&A
Thank you
SUDHIR VARMA
FCA; CIA (USA)