Provisions relating to audit of NGOs

Provisions relating to audit of NGOs

Continuing our discussion of the audit of NGOs, we will cover the various provisions relating to the audit of NGOs and some things an auditor should concentrate while auditing the books of an NGO.

A non-governmental organization (NGO) is basically a legally constituted organization which is operated by legal persons who act independently from any government. In those cases where the NGOs are funded partially or completely by governments, the NGO has to exonerate the government representatives from any membership in the organization in order to sustain its non-governmental status.

Let us begin our topic of the day without any further ado.

Provisions of appointing an auditor


The auditors of an NGO registered under the Societies Registration Act, 1860 (or under any law corresponding to this Act, in force in any part of India) or the Indian Trusts Act 1882 are normally appointed by the Management of the Society or Trust.

The auditors of NGO registered under section 8 of the Companies Act, 2013 are appointed by the members of the company.

Some of the statues such as the Companies Act, 2013, Foreign Contribution (Regulation) Act 1976, Income Tax Act 1961 required that the accounts of the NGO be audited and submitted to the prescribed authorities.

And since the NGOs usually have the benefits of various tax exemptions and deductions, failure to comply may lead to the forfeiture of such benefits for an NGO. In the case of NGO/PDA's different statutes have specified certain audit reports.

The Foreign Contribution (Regulation) Act 1976 has prescribed the format and requires that the same be furnished to the Ministry of Home Affairs within 60 days from the close of the financial year i.e. by May 30 each year.


Things to be considered by an auditor during audit of NGOs.


Here is a list of things an auditor should consider while planning the audit of an NGO.

  1. Knowledge of the NGOs work, its mission and vision, areas of operations and environment in which it operates.
  2. Updating knowledge of relevant statutes especially with regard to recent amendments, circulars, judicial decisions viz. Foreign Contribution (Regulation) Act 1976, Societies Registration Act, 1860, Income Tax Act 1961 etc. and the Rules related to the statutes.
  3. Reviewing the legal form of the Organisation and its Memorandum of Association, Articles of Association, Rules and Regulations.
  4. Reviewing the NGO's Organisation chart, then Financial and Administrative Manuals, Project and Programme Guidelines, Funding Agencies Requirements and formats, budgetary policies if any.
  5. Examination of minutes of the Board/Managing Committee/Governing Body/Management and Committees thereof to ascertain the impact of any decisions on the financial records.
  6. Study the accounting system, procedures, internal controls and internal checks existing for the NGO and verify their applicability.
  7. Setting of materiality levels for audit purposes.
  8. The nature and timing of reports or other communications.
  9. The involvement of experts and their reports.
  10. Review the previous year's Audit Report.


So, that is the end of the second article on Audit of NGOs. We shall continue this topic in the next article on the material items of assets and liabilities that an auditor should consider during his course of audit. Stay tuned for that.

If you have any concerns, doubts or suggestions, let me know. Just click on ask question at the left panel of the screen.

Thank You

Ask a Question Create a Ripple(News)