Financial Reporting For NPOs

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Financial Reporting for NPOsPresented by:Hashim SalieProfessional Accountant (SA)

Programme1. Legal Framework2. Accounting Framework3. Reporting Framework4. Examination procedures5. QuestionsFinancial Reporting for NPOs2

Legislative FrameworkNon-profit Organisations Act 71 of 1997: Governs theregistration and operations of NPOsCompanies Act 71 of 2008: Governs the registration ofNPOs in the form of Trusts or CompaniesIncome Tax Act : Governs the tax status and taxpayable of NPOsFinancial Reporting for NPOs3

Trust - NPO Registered with the Master of the High Court– Founded by a single/group of persons– Trustees must be approved by the Master Trust deed– Governs the activities of the Trust– Business is administered by Trustee Trustees– Provide security – fidelity bonds– Financial guarantees – fulfilling their responsibilities– Exempted from providing security – explicit in Trust DeedFinancial Reporting for NPOs4

Section 21 Company - NPO Register with CIPC or NPO Directorate of Dept. of Welfare– Public company– Minimum of seven members Limited by guarantee– No share capital– Members contribute financially MOI– No distribute of assets/income to members– Transfer of surplus on liquidation – similar institution Non-compliant– Trade with less than 7 members– Members may be held liable for debtsFinancial Reporting for NPOs5

Voluntary Association - NPO Registered under Common Law (“universitas”)– Founded on a contractual basis– No legal requirement for registration Constitution– Governs the activities and structures of the organisation– Delegates the authority to executives Members– Not liable for debts of Association– Liability may be limited to that agreed Liquidation– Assets must be transferred to similar institutionFinancial Reporting for NPOs6

Accounting FrameworkFramework forpreparing annualfinancial statementsare IFRS or IFRS forSMEsBased on thehistorical cost andaccrual conceptswere appropriateFinancial Reporting for NPOs7

Reporting FrameworkAnnualfinancialstatementsActivity reportNarrativereportSchedule ofmembersFinancial Reporting for NPOs8

Financial Statements Statement of financial position Statement of financial performance Statement of cash flow Notes to the financial statementsFinancial Reporting for NPOs9

Narrative report Details of objectives Details of meetings– Type and number of meeting Details of office bears and employees– Liable of members (non-compliance) Details of activities:– Nature of activities– Outputs of activities (quantifiable)– Alignment with objectivesFinancial Reporting for NPOs10

Activity Report Details of objectives Schedule of activities Achievements for the period Success in achieving objectivesFinancial Reporting for NPOs11

Schedule of members Details of members Compliance with regulations Non-compliance liability– Liability for debts of NPOFinancial Reporting for NPOs12

Professional AccountantISAs & IRSS440Agreed uponengagementCompanies ActNPO ActLegislation&RegulationsFinancial Reporting for NPOsISQC 1 QualityAssuranceCode ofProfessionalConduct13

Audit, Review or CompilationAudit, Review orCompilation willdepend of thefounding documentsAudit, Review orCompilation willdepend on the PIscoreFinancial Reporting for NPOs14

Audit, Review or Compilation Factors to consider:– Founding document– Donor requirements– Public Interest score– Effectiveness of financial management systems– Suspicions of mismanagementFinancial Reporting for NPOs15

Appointment of ProfessionalAccountant Legislative requirements– Compliance with regulations– No financial interest– Appoint process and documentation Regulations [IRSS 4400)– Agreed upon procedures– Engagement letterFinancial Reporting for NPOs16

Responsibilities of ProfessionalAccountant Agreed upon procedures– Examination of the financial statements– Examination of narrative report– Evaluating effectiveness system– Compliance with policies and legislationFinancial Reporting for NPOs17

Acceptance of Appointment Factors to consider:– ISQC 1 compliance issues– Risk and accountability– Competence and capacity– Assessing materiality and professional judgement– Compliance to legislationFinancial Reporting for NPOs18

Procedures for Financial Management Procedure for evaluating the effectiveness of financialmanagement:– Financial management policy: Review the financial management document approved– Procurement procedures: Compliance with legislation (BBBEE objectives) Adequacy of systems and procedures– Systems of internal control: Adequacy of control procedures Risk management strategy and systems– Accounting system: Competence of staff Adequacy of accounting system and procedures Compliance with accounting frameworkFinancial Reporting for NPOs19

Procedures for Compliance to Acts Procedures for auditing/examining compliance to the Acts– Registration: Legislative requirements– Members of NPO: Section 21 company: minimum membership Trust: approval by Master of the Court– Donations, bequests and contribution: Examine the schedule of donations and contributions received Compliance check with donor conditionsFinancial Reporting for NPOs20

Procedures for Compliance to Acts Procedures for auditing/examining the budget– Fixed assets: Maintenance of fixed asset register Reconciliation with accounting records Utilisation of assets– Donations Compliance with donor conditionsFinancial Reporting for NPOs21

Professional Accountant’s Report Regulations/legislation governing the appointment Independent capacity with no financial interest Responsibility of management and Professional Accountant Compliance of financial statements with:– Regulations/legislation– Accounting records– Accounting frameworkFinancial Reporting for NPOs22

Professional Accountant’s Report Limitations – access to requested information Appropriateness of accounting policies Qualifications:– Non-compliance with regulations/legislation– Financial records are not properly maintained– Materiality breaches in financial reportsFinancial Reporting for NPOs23

Financial Reporting for NPOs24

Financial Reporting for NPOs25

WCED Guide1. hools/Basic-Financial-ManualSchools-ver2.pdf2. l. · PDF fileFinancial Reporting for NPOs26

Procedures for Financial Management Procedure for evaluating the effectiveness of financial management: –Financial management policy: Review the financial management document approved –Procurement procedures: Compliance with legislation (BBBEE objectives) Adequacy of systems and procedures –Sys

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