Accounting Officers and Registered NPO’s

For additional information related to NPOs, please read the previously published articles on our website too.

This article discussed the key obligations of NPOs and the compliance requirements of NPO Accounting Officers.

Accounting Records and Financial Statements

The NPO Act requires that all registered NPOs must, to the standards of generally accepted accounting practice:

Keep, accounting records of its income, expenditure, assets, and liabilities. This will include all cash and credit transactions.
Draw up financial statements within six (6) months of its financial year-end, which must include an income, and expenditure statement, and a balance sheet reflecting its assets and liabilities. 

Every NPO must preserve each of its books of account, supporting vouchers, records of subscriptions or levies paid by its members, income and expenditure statements, balance sheets, and accounting officer’s reports, in an original or reproduced form.

The NPO Act does not define the meaning of generally accepted accounting practice (GAAP). However, it is commonly understood to mean that financial statements must be drawn up to what is common within a particular industry or sector. Generally, NPOs prepare financial statements using the following conventions:

International Financial Reporting Standards (IFRS),
International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs),
Modified cash basis of accounting or other bases suitable to the activities and nature of the NPO.

An NPO should select a reporting convention by considering the following:

Any legislative requirements applicable to the NPO,
The specifications from donors or government grants,
The nature and scope of the activities of the NPO

Accounting officer’s report

The NPO Act requires that all registered NPOs appoint an accounting officer to hold office. Chapter 1 of the NPO Act defines an accounting officer, in relation to a nonprofit organization, as a person contemplated in section 60 of the Close Corporations Act, 1984.

Section 60 of the Close Corporations Act empowers the Minister of the Department of Trade and Industry to issue a notice appointing professional bodies whose members may act as accounting officers.

The accounting officer has a duty in terms of the NPO Act to compile a written report within eight (8) months of the organization’s financial year-end. The accounting officer’s report must be submitted to the NPO and state whether the: 

• Financial statements of the organization are consistent with its accounting records,
• Accounting policies of the organization are appropriate and have been appropriately applied in the preparation of the financial statements, and the
• NPO has complied with the provisions of the NPO Act and of its constitution, which relates to financial matters.

The accounting officer also has a reporting duty to the NPO Directorate. If the accounting officer of an NPO becomes aware of any instance in which the NPO has failed to comply with the financial provisions of the NPO Act or its constitution, the accounting officer must notify the NPO Directorate of this non-compliance. The notice must be sent within one (1) month after becoming aware of the failure and must be in writing with sufficient detail to describe the nature of the non-compliance.

The duty to report to the NPO Directorate supersedes the duty of confidentiality owed to the organization by the accounting officer. 

It is the duty of an NPO to appoint an accounting officer. If an accounting officer accepts the appointment then the terms of the engagement should be specified in an engagement letter issued by the accounting officer to the NPO. 

The accounting officer should ensure, with representatives of the entity and, where appropriate, with other specified parties who will receive copies of the report, that there is a clear understanding regarding the accounting officer's engagement procedures and the conditions of the engagement.

It is important to note that the NPO Act does not specify the procedures that the accounting officer should follow prior to issuing an accounting officer report for the NPO. The accounting officer should therefore agree to the scope and procedures with the NPO. This agreement should be stipulated in an engagement letter. 

Accounting officers should perform their duties to a professional standard as is expected of a professional acting in the public interest.

Accounting officers are required therefore to perform their duties in terms of:

• Common law requirements of care, skill, and diligence,
• Contractual requirements as agreed to between the parties,
• Professional standards and codes applicable to accounting officers that are members of a professional body,
• Any other statutory requirements and obligations. 

Professional accounting bodies require that their members acting as accounting officers do so in terms of specific industry standards. These standards are designed to protect the interest of the NPO and ensure the accounting officer performs their duties diligently and comprehensively. 

The duties of accounting officers are explicitly stated in the NPO Act. However, in addition to these statutory duties, accounting officers have certain common law duties such as:

• Performing engagements with professional competence and due professional care,
• Planning and supervising the engagement performance, and
• Obtaining sufficient relevant data to afford a reasonable basis for issuing an accounting officer report.

The following provides a list of suggested procedures the accounting officer should perform:

• Obtain an understanding of the business, including the internal and external business environment, the needs of the users of the financial statements, and any legislation that may affect the presentation and disclosure of the financial statements,
• Perform inquiries about the entity’s accounting principles and practices,
• Perform inquiries about the entity’s procedures for recording, classifying, and summarizing transactions, accumulating information for disclosure in the financial statements, and preparing financial statements,
• Compare the financial statements with the trial balance,
• Compare the trial balance with the ledgers,
• Compare the financial statements with the registers, lists or schedules of debtors, creditors, inventory and fixed assets, 
• Compare the bank reconciliation with the bank statements and ledgers, 
• Perform inquiries about material assertions in the accounting policies,
• Perform analytical procedures to identify relationships and unusual items,
• Inquire about events subsequent to the date of the financial statements,
• If the accounting officer has reason to believe that financial information has been materially misstated, he may carry out additional procedures to inspect subsidiary accounting records,
• Inquire about decisions and actions by the entity and its representatives that may affect the accounting policies,
• Obtain confirmation that the organization has met the requirements related to accounting records and other financial matters as prescribed in the NPO Act and the NPOs constitution,
• Read the financial statements to determine agreement with accounting records and consider whether the financial statements conform to the accounting policies,
• Obtain management representation where appropriate.