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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. Trust - Registered document Society - Registrar of Societies Company - Sec. 25 of the Companies Act, 1956.

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Formation audit of ngo s

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)



Constituents
Constituents

  • Trust - Registered document

  • Society - Registrar of Societies

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


Trust
Trust

  • No separate Act

  • Trust Deeds can be registered

  • Settler

  • Corpus

  • Trustees

  • Trust Deed


Trust deed
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


Societies
Societies

Status

- Delhi / state

- All India


Societies1
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


Societies2
Societies

  • Memorandum of Association

    - name

    - objects

    - profits/benefits to promoters/board members

    - dissolution clause

    - subscribers


Societies3
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


Societies4
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


Societies5
Societies

  • Certificate of Registration

  • Certified copies from Registrar of

    - Memorandum of Association

    - Rules & Regulations


Societies6
Societies

  • Registrations

    - PAN

    - TAN

    - u/s 12AA of Income Tax Act

    - u/s 80G of Income Tax Act

    - IEC code

    - VAT


Societies7
Societies

  • Establish bank account

  • Deposit membership fee

  • Start members register


Companies
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



Types of audit
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


Engagement
Engagement

  • Appointment by appropriate authority

  • Engagement letter

  • Scope of audit

  • Reporting requirements

  • Fee


Audit approach
Audit approach

  • “Knowledge of business” objects ; activities

  • Audit objectives

  • Audit plan

  • Audit process

  • Resources



Project based audit
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


Donor based audit
Donor based audit

  • Donor sanction letter

  • Terms & Conditions

  • Budget

  • Reporting requirements


  • 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
Efficiency audit

  • Donors / Governing body / Trustees

  • Verification of expenses beyond accounting

  • External help of specialists

  • Common sense / matured judgment

  • Team leaders


Computerized environment
Computerized Environment

  • Size of NGO / No. of transactions

  • Familiarity with software in use

  • Asses software controls

  • Use auditing softwares

  • Remain abreast with technology


Statutory compliances
Statutory Compliances

  • Income Tax Act

  • FCRA / FEMA / RBI

  • Registration laws

  • Labour laws

  • VAT / Service Tax

  • Commercial laws

  • Protection laws

    8. General laws


Auditing and assurance standards
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


Auditing and assurance standards1
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


Auditing and assurance standards2
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


Auditing and assurance standards3
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)


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