BOOKS
OF ACCOUNTS & METHOD
OF ACCOUNTING
Accounting for foreign contribution received in kind
As
per rule 8(1)(a), account has to be maintained for foreign
contribution received in kind. Form FC-6 provided the format
and the manner in which the receipt as well as the utilisation
of contributions received in kind. The entries made in
FC-6 should correspond with entries made in Form FC-3.
Maintenance
of form FC-6 - An organisation may keep the Form FC-6 in
a book form. Form FC-6 requires the following information
to be recorded in case of receipt :
(i) Date
(ii) Name and
Address of the Donor
(iii) Mode
of receipt
(iv) Purpose
of receipt
(v) Quantity
received
(vi) Approximate
value
(vii) Date
of intimation send to Central Government
Recording
of specified information - With regard to utilisation and
disposal of contributions received in kind, Form FC-6 requires
the following information to be recorded :
(i) Date
(ii)
Name and Address of the Donee
(iii)
Purpose
(iv)
Quantity utilised by the organisation
(v) Quantity
sold
(vi)
Quantity otherwise transferred
(vii)
Quantity, if sold, the amount for which sold
(viii)
Reference to entry in FCRA account
(ix)
Quantity in stock
It
may be noted that it is not necessary to file Form FC-6
with FCRA return in Form FC-3. In case when article is
sold and some revenue is generated in Indian currency,
such amount should be shown as receipt in Form FC-3 as
well as the FCRA cash book.
Approximate
value of Contribution received in kind :- Form FC-6 is
like a stock register, where the receipt movement and closing
balance of all goods received in kinds are maintained in
quantitative term. But, column-6, of the Form requires
approximate value of the goods to be specified.
In this context, it may be further noted that, the approximate
or the estimated value of contribution received in kind is required
to be reported in Form FC-3, column 6&8. Therefore, for reporting
purposes of contribution received in kind, column 6 & 8 of
the Form FC-3 are relevant and Form FC-6 is just a format for
preparing the books of accounts with regard to contribution received
in kind.
Does
FCRA prescribe ‘Cash Basis’ of method of
accounting
There is a commonly prevailing understanding that FCRA prescribes ‘Cash
Basis’ of method of accounting. Such presumption has resulted
due to the requirement of furnishing receipt and payment account
along with Form FC-3 as per Rule 8(2). But, there is no specific
mention of the method of accounting to be followed by the organisation
for FCRA purposes. Section 13, talks about the maintenance of
accounts, but there is no reference to the method of accounting
to be followed by the organisation. The text of section 13 is
reproduced as under:
“Recipients
of foreign contribution to maintain accounts etc.
Every association, referred to in section 6, shall maintain,
in such form and in such manner as may be prescribed,-
(a) an account of any foreign contribution received by it, and
(b) a record as to the manner in which such contribution has
been utilised by it.
As
it is evident from Section 13 that no specific method of
accounting has been prescribed. But the intent and requirement
of FCRA in this regard are to some extent clarified in
Rule 8 of FCR Rules, 1976. The text of Rule 8 is reproduced
as under:
“Maintenance
of Accounts-
(1) A separate set of accounts and records shall be maintained,
exclusively for foreign contribution received and utilised-
(a) In Form FC-6, where the foreign contribution relates only
to articles as referred to in item (I) of sub-clause(c) of clause
(1) of section 2;
(b) In the cashbook and ledger account on double entry basis,
where the foreign contribution relates to currency received and
utilised, and a separate bank account shall be maintained in
respect of such contribution;
(c) In Form FC-7, where the foreign contribution relates to foreign
securities.
(2)
Every account specified in sub-rule (1) shall be maintained
on an yearly basis, commencing on the 1st day of April
each year and every such yearly account, duly certified
by a chartered accountant in Form FC-3 along with a Balance
Sheet and statement of Receipts and Payments, shall be
furnished, in duplicate, to the Secretary to the Government
of India, in the Ministry of Home Affairs, New Delhi, within
four months of the closure of the year”.
From the above, it can be seen that as per Rule 8(1)(b), all
organisations are required to maintain separate books of account
for foreign contribution received and utilised. The books of
accounts required are ledger and cash book maintained on the
principles of double entry. Further Rule 8(2), specifies that
Balance Sheet and Receipts & Payments Account should be submitted.
There is no mention of the specific method of accounting to be
followed by the organisation.
Press
note issued by Central Government
The
Ministry of Home Affairs (FCRA division) issued a press
note dated 09.01.98, where some clarification with regard
to books of account and annual return are given. Press
Note issued by The Ministry of Home Affairs has been annexed
in Annexure 10.1. The relevant extract of the press note
is as under :
“You
must maintain a separate set of accounts and records exclusively
meant for the foreign contribution received and utilized
by you as indicated below :
(a) in Form FC-6, where the foreign contribution is in the form
of an article.
(b) in the cash book and ledger account on double entry basis,
receipt and utilization, where the foreign contribution is in
the form of currency, (a separate Bank account is also to be
maintained in respect of such foreign contribution); and
(c) in Form-7, where the foreign contribution is in the form
of foreign securities.
Every account, as indicated above, must be maintained on an yearly
basis, commencing on the 1st day of April each year. Every yearly
account, duly certified by a Chartered Accountant, in Form FC-3,
along with a balance sheet and a statement of receipt and payment,
must be furnished, in duplicate, to the Secretary to the Govt.
of India, in the Ministry of Home Affairs, FCRA Division, Lok
Nayak Bhavan, New Delhi-110003 by 31st July of the succeeding
year.”
In
the light of Section 13, Rule 8 and press note dated 09.01.98,
it seems that FCRA require maintenance of separate cash
book and ledger on double entry basis for the receipt and
utilisation of foreign funds. None of the above three legislations
specify the method of accounting to be followed.
Should
one shift from ‘Accrual’ to ‘Cash Basis’ after
FCRA registration
It
has to be appreciated that books of account and method
of accounting is not a post FCRA registration phenomenon.
An organisation applying for FCRA registration is expected
to have domestic transaction. And it is also expected to
maintain books of account on the basis of permissible methods
of accounting. Suppose an organisation prior to FCRA registration
is following ‘Accrual Basis’ of accounting,
will FCRA registration imply shift to ‘Cash Basis’ of
accounting specifically for FCRA purpose? In our opinion,
there is nothing in FCR Act or Rules to suggest that an
organisation has to maintain books of account for Cash
Basis Only. The FCRA is completely non-interfering in this
regard. But as far as reporting requirements are concerned
FCRA is very clear about submission of receipt and payment
account and Form FC-3. The Form FC-3 should be on the basis
of actual receipt and utilisation thereof. It is very clear
that the FCR Act and Rules require detailed submission
of FC receipt and payment during the year, irrespective
of the method of accounting. Therefore, organisation following
Accrual Basis of accounting can continue with the same
method of accounting
The
legal intent of FCRA could not have been against Accrual
Basis of accounting. The very fact that the FCR Rules require
the submission of the Receipts & Payments Account,
itself signifies that both the method of accounting are
permissible. Because specific mention of Receipts & Payments
Account becomes relevant only when an organisation follows
Accrual Basis of accounting otherwise for an organisation
following Cash Basis of accounting, even the Income & Expenditure
Account is like a Receipts & Payments Account, particularly
incase of NGOs were capital expenditure are also advisable.
Does
FC-3 necessitate ‘Cash Basis’ of accounting
From
the reporting requirement of FCRA, it is evident that the
authorities are interested in the actual receipts and utilisation
of FCRA funds. If we see the Form FC-3, we find that the
reporting is to be made for the receipts and utilisation
of FC. FCRA also requires submission of receipt and payment
account along with FC-3 return. The intent of FCRA is very
clear that it wants the organisation to report all the
FC transactions on cash basis. In other words, the organisation
should report the actual receipt and payment of foreign
funds during the previous year irrespective of the method
of accounting followed. The organisation which are following
accrual basis of accounting should not prepare the FC-3
statement on the basis of their income and expenditure
account. The FC-3 return should be based on the receipt
and payment account. As long as the organisation is complying
with the reporting requirements of FCRA, it does not seem
necessary to change the method of accounting only for the
purposes of FCRA.
Concluding
remark
In
the light of the above discussions, we believe that there
is no necessity to deviate from normal method of accounting
for FCRA purposes. Only care which should be taken is that,
separate books of accounts for FC should be maintained
and the organisation should be in a position to provide
the details of all the FC and the utilisation of such FC
during the previous year. Further, the organisation should
also produce a receipt and payment account. The remaining
statements such as income and expenditure account, Balance
Sheet, may be prepared both for FC and domestic purposes
separately on the basis of method of accounting followed
by that organisation. The FC-3 return should be based on
the receipt and payment account, in other words, for reporting
purposes the computation of FC receipts and utilisation
should be done on cash basis only.
Overall
Summary
To
sum up the discussions :
(i) All associations, which have received foreign contributions
are required to maintain separate books of accounts
(ii) FCRA specifies that the books of account should be maintained
on the principles of double-entry book keeping on yearly basis
from 1st April to 31st March of the year.
(iii) Every year Balance Sheet and Receipts and Payments accounts
are required to be prepared and certified by a Chartered Accountant
(iv) Record of contribution received in kind is required to maintained
as per Proforma provided in FC-6
(v) Where organisation has received foreign securities, Form
FC-7 is required to be followed to maintain the records of such
securities
(vi) It may be noted that separate books of accounts specifically
for foreign contribution are required to be maintained.
(vii) Under no circumstances, domestic contributions should be
mixed up with foreign contributions
(viii) In case of contributions received in kind, the approximate
value is required to be mentioned in Form 6 and is also required
to be reported in Form FC-3
(ix) FCRA does not specifically prescribe any method of accounting.
Therefore, an organisation should continue to maintain its account
on the method of accounting it has been following prior to FCRA
registration
(x) The FC-3 statement should be prepared on cash basis, based
upon the receipt and payment account.
Annexure 10.1
Press
note, dated 09.01.1998
issued by Government of India, Ministry of Home Affairs,
Foreign
Contribution and (Regulation) Act, 1976 and Rules Framed
there under
1.
Associations registered/permitted to accept foreign contribution.
2. Chartered Accountants.
1. All associations registered / permitted to accept foreign
contribution are reminded that they are required to submit an
annual return in the revised Form FC-3. This includes details
of the amount of foreign contribution received by them during
the year, its source, the manner of its receipt, its purpose
and the manner in which it was utilized by them. The annual returns
for the year 1997-98 must be submitted by 31-07-1998. Please
note that if even no foreign contribution was received by you
during the year, it is mandatory to file a ‘Nil’ return.
2. You must maintain a separate set of accounts and records exclusively
meant for the foreign contribution received and utilized by you
as indicated below :
(a) in Form FC-6, where the foreign contribution is in the form
of an article.
(b) in the cash book and ledger account on double entry basis,
receipt and utilization, where the foreign contribution is in
the form of currency, (a separate Bank account is also to be
maintained in respect of such foreign contribution); and
(c) in Form-7, where the foreign contribution is in the form
of foreign securities.
Every
account, as indicated above, must be maintained on an yearly
basis, commencing on the 1st day of April each year. Every
yearly account, duly certified by a Chartered Accountant,
in Form FC-3, along with a balance sheet and a statement
of receipt and payment, must be furnished, in duplicate,
to the Secretary to the Govt. of India, in the Ministry
of Home Affairs, FCRA Division, Lok Nayak Bhavan, New Delhi-110003
by 31st July of the succeeding year.
3.
Chartered Accountants, before certifying the accounts in
Form FC-3, must ensure that these have been prepared in
accordance with the provisions contained in the Foreign
Contribution (Regulation) Act, 1976 and the Rules framed
thereunder.
4. Non-submission of the return in time; furnishing of false
information; mis-utilisation or diversion of foreign contribution
for purposes other than those for which such contribution was
received; transfer of contribution to any other organisation
who have not been permitted to receive foreign contribution either
by way of registration or prior permission, constitute a violation
of the provisions of the Act and attract penal action.
