FRC ISSUES ACCOUNTING GUIDELINES FOR NGOs

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Government has issued guidelines that will subject not for profit organizations or Non Governmental Organizations (NGO’s) to tight scrutiny and make them accountable in their activities.
A move by the House Committee on Civil Society in 2010 to track funds procured by NGO’s was resisted by some members of the Civil Society Organizations (CSO) community in Nigeria on the argument that government do not have the right to track funds it did not provide or make them account for it.
However, the national roadmap leading to the adoption of International Financial Reporting Standards (IFRS) by government categorised not for profit organizations in phase 2 of the IFRS mandating them to comply with the provisions of the initiative.
The Financial Reporting Council (FRC) which drives the new financial reporting initiative had been directed by the Federal Executive Council (FEC) while approving the roadmap to monitor implementation of the process.
In response to the directive the FRC in Lagos issued a guideline to not for profit organizations which was contained in the Statement of Accounting Standard (SAS 32) it released during a public presentation exercise.
The FRC Act provided that the council shall develop accounting and financial reporting standards to be observed in the preparation of financial statements by the private sector and small and medium enterprises in Nigeria and also promote the general acceptance adoption and compliance with such standards by prepares and users of financial statements.
Speaking at the occasion Executive Secretary and Chief Executive Officer of FRC Mr. Jim Osayande observed the resistance of some entities operating on commercial lines within charity claiming exemption on their income on the ground that the totality of the outfits are charitable institutions.
Osayande said their argument was simply based on the premise that they are engaged in the ‘advancement of an object of general public utility’ and classified as ‘company limited by guarantee’ as provided by section 26 of the companies and allied matters Act LFN 2004.
But he argued that such claim when made in respect of an activity carried out on commercial lines will run contrary to the intention of the provision and put the assets of the charitable purpose at a significant risk.
According to him proper financial reporting infrastructure enhances benefits to entities engaged in activities such as relief of the poor which included relief to destitute, orphans, handicapped, disadvantaged women/children, small and marginal farmers, indigent artisans and senior citizens in need of aid, education of members, medical relief and any other genuine charitable purpose and to deny it to purely commercial and business entities which wear the mask of a charity.
Clarifying the council’s position on the issue, he said that the income of all not for profit registered under the Act is exempted from income tax but business subsidiaries set up by charities are treated in the same manner as any other company as practiced in the UK, Singapore and India.
‘Carrying on an activity in the nature of trade, commerce or business is a question of fact to be decided based on their nature, scope, extent and frequency of the activity’ Osayande remarked adding that if industry/trade had dealings only with members exempt is proved on ground of mutuality but when they have dealings with non members as well as leading to generation of profits the definition of charitable purpose is therefore unnecessarily expanded to include a business or trading subsidiary.
He pointed out that an activity would be considered ‘business’ or a ‘trading subsidiary’ if it was undertaken with a profit motive.
Part of the guideline indicated that cash flows from foreign currency transactions as well as other cash inflow should be reported.
The CEO identified non uniformity in the financial statements by not for profit organizations which he said differed from one type of institution to another thus making comparison and accountability difficult.
He said the SAS 32 which became effective July 2011 established uniform basis of accounting and reporting of activities of not to profit organizations.
He urged affected organizations to comply with the new financial reporting regime which becomes effective January 1, 2013.

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