NGO’s FORMATION, ACCOUNTS & AUDIT

1. NGO’s FORMATION, ACCOUNTS & AUDIT 21st December, 2009 NIRC of ICAI New Delhi CA SUDHIR VARMA FCA; CIA(USA)

2. Formation of NGO’s CA SUDHIR VARMA FCA; CIA(USA)

3. Constituents • Trust - Registered document • Society - Registrar of Societies • Company - Sec. 25 of the Companies Act, 1956 CA SUDHIR VARMA FCA; CIA(USA)

4. Trust • No separate Act • Trust Deeds can be registered • Settler • Corpus • Trustees • Trust Deed CA SUDHIR VARMA FCA; CIA(USA)

5. Trust Deed • 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 CA SUDHIR VARMA FCA; CIA(USA)

6. Societies Status - Delhi / State - All India CA SUDHIR VARMA FCA; CIA(USA)

7. Societies • In state level at least 7 promoters (not blood related) • In all India level at least 8 promoters from 8 different states of India CA SUDHIR VARMA FCA; CIA(USA)

8. Societies • Memorandum of Association - name - objects - profits/benefits to promoters/board members - dissolution clause - subscribers CA SUDHIR VARMA FCA; CIA(USA)

9. Societies • 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 CA SUDHIR VARMA FCA; CIA(USA)

10. Societies • 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 CA SUDHIR VARMA FCA; CIA(USA)

11. Societies • Certificate of Registration • Certified copies from Registrar of - Memorandum of Association - Rules & Regulations CA SUDHIR VARMA FCA; CIA(USA)

12. Societies • Registrations - PAN - TAN - u/s 12AA of Income Tax Act - u/s 80G of Income Tax Act - IEC code - VAT CA SUDHIR VARMA FCA; CIA(USA)

13. Societies • Establish bank account • Deposit membership fee • Start members register CA SUDHIR VARMA FCA; CIA(USA)

14. Companies • 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 CA SUDHIR VARMA FCA; CIA(USA)

15. System of Accounts • Accrual system of accounts • Cash system of accounts CA SUDHIR VARMA FCA; CIA(USA)

16. System of Accounts • FOREIGN FUNDS • LOCAL FUNDS • - Special projects • - General • REVENUES CA SUDHIR VARMA FCA; CIA(USA)

17. BALANCE SHEETAccounting of Fixed Assets • Fully donated • Partly donated/subsidized • Bought from specific grants • Depreciation CA SUDHIR VARMA FCA; CIA(USA)

18. BALANCE SHEETInvestments • Approved List • Corpus Investments • Special Fund Investments • Interest Accrued CA SUDHIR VARMA FCA; CIA(USA)

19. BALANCE SHEETCurrent Assets • Cash in hand • Bank balances • Inventories • Receivables • Reimbursable • Advances CA SUDHIR VARMA FCA; CIA(USA)

20. BALANCE SHEETCurrent Liabilities • Payables • Statutory dues • - Provident fund • - TDS • - Others CA SUDHIR VARMA FCA; CIA(USA)

21. BALANCE SHEETCapital Fund • General Fund • Corpus Fund • - interest accrued on corpus investments • - transfer to corpus • Specific Funds • - building fund • - others CA SUDHIR VARMA FCA; CIA(USA)

22. BALANCE SHEETProject Funds(to the extent unutilized) • Project balances • Carry Forward for specific projects • Board Resolutions with Form-10 CA SUDHIR VARMA FCA; CIA(USA)

23. BALANCE SHEETReserves • Facility fund • Staff benefit fund • Other specific funds CA SUDHIR VARMA FCA; CIA(USA)

24. INCOME & EXPENDITURE A/CIncomes • Donor wise accounting • Incomes from revenue • Surplus from projects closed • R & D receipts CA SUDHIR VARMA FCA; CIA(USA)

25. INCOME & EXPENDITURE A/CExpenditure • Project by exp. • Program exp. • Administration/overhead exp. • R & D exp. CA SUDHIR VARMA FCA; CIA(USA)

26. Audit of NGO’s CA SUDHIR VARMA FCA; CIA(USA)

27. Types of Audit 1. Transaction based audit 2. System / Risk based audit 3. Project based audit 4. Donor based audit 5. Efficiency audit 6. Compliance / Statutory audit - Income Tax - FCRA - Registering authority CA SUDHIR VARMA FCA; CIA(USA)

28. Engagement • Appointment by appropriate authority • Engagement letter • Scope of audit • Reporting requirements • Fee CA SUDHIR VARMA FCA; CIA(USA

29. Audit approach • “Knowledge of business” objects ; activities • Audit objectives • Audit plan • Audit process • Resources CA SUDHIR VARMA FCA; CIA(USA

30. Project based audit • 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 CA SUDHIR VARMA FCA; CIA(USA)

31. Donor based audit • Donor sanction letter • Terms & Conditions • Budget • Reporting requirements CA SUDHIR VARMA FCA; CIA(USA)

32. 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 CA SUDHIR VARMA FCA; CIA(USA)

33. Efficiency audit • Donors / Governing body / Trustees • Verification of expenses beyond accounting • External help of specialists • Common sense / matured judgment • Team leaders CA SUDHIR VARMA FCA; CIA(USA)

34. Computerized Environment • Size of NGO / No. of transactions • Familiarity with software in use • Asses software controls • Use auditing software • Remain abreast with technology CA SUDHIR VARMA FCA; CIA(USA)

35. Statutory Compliances • Income Tax Act • FCRA / FEMA / RBI • Registration laws • Labor laws • VAT / Service Tax • Commercial laws • Protection laws • General laws CA SUDHIR VARMA FCA; CIA(USA)

36. Auditing and assurance standards AAS1 Basic Principles Governing an Audit AAS2 Objectives and scope of the Audit of Financial Statements AAS3 Documentation AAS4 The Auditor’s Responsibility to consider Fraud and Error is an Audit of Financial Statements AAS5 Audit Evidence AAS6 Risk Assessments and Internal Control AAS7 Relying Upon the work of an Internal Auditor AAS8 Audit Planning AAS9 Using the Work of another Auditor CA SUDHIR VARMA FCA; CIA(USA)

37. Auditing and assurance standards AAS10 Using the Work of an Expert AAS11 Representations by Management AAS12 Responsibility of Joint Auditors AAS13 Audit Materiality AAS14 Analytical Procedures AAS15 Audit Sampling AAS16 Going Concern AAS17 Quality Control for Audit Work AAS18 Auditing of Accounting Estimates AAS19 Subsequent Events AAS20 Knowledge of the Business CA SUDHIR VARMA FCA; CIA(USA)

38. Auditing and assurance standards AAS21 Consideration of Laws and Regulations in an Audit of Financial Statements AAS22 Initial Engagements – Opening Balances AAS23 Related Parties AAS24 Audit Considerations Relating to Entities Using Service Organizations AAS25 Comparatives AAS26 Terms of Audit Engagements AAS27 Communication of Audit Matters with Those Charged with Governance AAS28 The Auditor’s report on Financial Statements CA SUDHIR VARMA FCA; CIA(USA)

39. Auditing and assurance standards AAS29 Audit in a Computer information Systems Environment AAS30 External Confirmations AAS31 Engagements to Compile Financial Information AAS32 Engagements to Perform Agreed – Upon Procedures Regarding Financial Statements AAS33 Engagements to Review Financial Statements AAS34 Audit Evidence – Additional Consideration for Specific Items AAS35 The Examination of Prospective Financial Information CA SUDHIR VARMA FCA; CIA(USA)

40. Q & A Thank you CA SUDHIR VARMA FCA; CIA(USA)