FORMATION & AUDIT OF

NGOs
23rd October, 2009
East Delhi CA CPE Study Circle
NIRC of ICAI
New Delhi

CA SUDHIR VARMA
FCA; CIA (USA)

Formation of NGOs

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 NGOs

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
Basic Principles Governing an Audit
AAS2
Objectives and scope of the Audit
of
Financial Statements
AAS3
Documentation
AAS4
The Auditors 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

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

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 Auditors report on Financial Statements

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

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