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Churches, mosques face penalty for poor financial reporting

By on July 20, 2013

The Federal Government through the Financial Reporting Council of Nigeria has given religious and other not-for-profit organisations until January 1, 2014, to start reporting their profit-making subsidiaries as business entities in line with a new financial reporting regime, or risk   penalties.

Also, under another financial regime, whose deadline has not been fixed, the FRC will refuse to give certificate of registration to companies’ whose chairmen, managing directors and chief finance officers are not registered with it.

The Executive Secretary/Chief Executive Officer, FRC, Mr. Jim Obazee, who made the disclosure at a news conference in Lagos on Thursday, said a number of entities operating on commercial lines within charity were claiming exemption on their income on the ground that the totality of the outfits was charitable institutions.

Obazee said such entities had argued that they were 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.

According to the FRC boss, when such a claim is made in respect of an activity carried out on commercial lines, it is contrary to the intention of the provision, and as such, put the assets of the charitable purpose at “significant risk.”

He said, “The income of all not-for-profit organisations registered under the Companies and Allied Matters Act is exempted from income tax. However, business subsidiaries that are set up by charities are usually treated in the same manner as any other company. The income of these business subsidiaries is subject to income tax and should be rightly so reported, accounted and disclosed. That is the practise in the United Kingdom, Singapore and other developed economies.

“An activity would be categorised ‘business’ or ‘a trading subsidiary’ if it is undertaken with a profit motive. Normally, the profit motive test should be satisfied, but in any given case, activity may be regarded as business even when profit motive cannot be established/proved.”

The FRC boss, however, said not-for-profit entities were organised and operated exclusively for social, educational, professional, religious, health, charitable or any other not-for-profit purposes.

Obazee said, “Currently, financial statements presented by not-for-profit organisations in Nigeria are not uniform and comparable. They differ from one type of institution to another, and sometimes among institutions of a particular type, thus, making comparison and accountability difficult. SAS 32 that became effective on July 1, 2011 establishes uniform basis of accounting and reporting of activities of not-for-profit organisations.

“The national roadmap to the adoption of International Financial Reporting Standards categorised not-for-profit organisations in phase 2; expecting them to comply with the provision of IFRS effective January 1, 2014. The defunct Nigerian Accounting Standards Board, whose functions are now under the purview of the Financial Reporting Council, was directed by the Federal Executive Council, in its approval of the national roadmap, to monitor the implementation of the national roadmap.”

The FRC boss stressed that starting from January 1, 2014, any not-for-profit organisation, which failed to comply with the SAS 32 accounting regime, would start facing some penalties.

Obazee said, “By December 2013, we will review the compliance level. By January 1, 2014, we will start taking some soft steps to ensure compliance. We will work with the Central Bank of Nigeria and the Corporate Affairs Commission to do this.”

On the registration of professionals, he said very soon, companies’ chairmen, managing directors and chief finance officers would not be qualified to sign their companies’ annual financial statements unless they were registered with the FRC.

He said FRC had started requiring them to put their FRC registration numbers beside their signatures in the companies’ annual financial statements.

Obazee, however, noted that only those who belonged to professional bodies with enabling laws of the National Assembly would be registered by the FRC.

On the recent media reports that the whereabouts of about N500m raised by the council for the proposed IFRS Academy was not known, he said the money was intact pending relevant approvals for the commencement of the institution.