The Statement of Affairs is a simplified financial document that NGOs, including churches, foundations, and other incorporated trustees, often prepare to meet the Corporate Affairs Commission’s (CAC) annual return filing requirements in Nigeria. It is especially necessary for NGOs that are yet to commence operations, serving as an alternative to audited financial statements.
In this article, we will explore what a Statement of Affairs entails, its purpose, and how to prepare one, particularly for organizations with no income or expenditure.
What is a Statement of Affairs?
A Statement of Affairs is a financial summary that reflects an organization’s financial position when it has not yet begun operations. Unlike audited financial statements, which detail income and expenditures, a Statement of Affairs highlights only the organization’s initial assets, liabilities, and financial setup at the start of its journey.
Why NGOs Need a Statement of Affairs
- Compliance with CAC Regulations:
NGOs yet to begin operations are required to submit a Statement of Affairs as part of their annual returns to demonstrate compliance with CAC filing requirements.
- Transparency and Record-Keeping:
Even when there are no operational activities, the Statement of Affairs ensures proper documentation of the organization’s financial foundation.
- Avoidance of Penalties:
Filing annual returns, including a Statement of Affairs, helps avoid penalties, deregistration, or reputational damage.
- Simplified Filing Process:
For NGOs without financial activity, preparing a Statement of Affairs is a cost-effective and straightforward alternative to an audited financial statement.
Key Components of a Statement of Affairs for NGOs Yet to Begin Operations
For an NGO that has not started operations, the Statement of Affairs typically includes:
- Opening Assets:
Any initial funds in the bank account.
Physical assets like office equipment (if any).
- Liabilities:
Outstanding loans or obligations, if applicable.
- Capital Contributions:
Contributions from founders or donors to set up the organization.
- Net Financial Position:
The difference between the initial assets and liabilities.
Steps to Prepare a Statement of Affairs for NGOs Without Operations
- Gather Foundational Records:
Collect all available documents related to initial setup, such as bank account statements, founder contributions, and asset records.
- List Opening Assets:
Document all tangible and financial assets available to the organization at inception.
- Identify Liabilities:
Note any loans or obligations that may have been incurred during the setup phase.
- Prepare the Financial Summary:
Organize the data into a clear and concise document, categorizing assets, liabilities, and net position.
- Verify and Format:
Review the statement to ensure accuracy and compliance with CAC requirements.
Filing Requirements for NGOs Yet to Begin Operations
NGOs must submit a Statement of Affairs as part of their annual returns within six months of their financial year-end.
The document must be signed by an authorized officer of the organization.
Common Challenges in Preparing a Statement of Affairs
- Incomplete Records:
Organizations may struggle to document contributions, especially when proper records were not maintained during setup.
- Misunderstanding Requirements:
Some NGOs may be unaware of the need to submit a Statement of Affairs when there are no operational activities.
- Compliance with CAC Standards:
Ensuring that the Statement of Affairs meets the CAC’s format and expectations can be challenging for organizations without financial expertise.
Differences Between Audited Financial Statements and Statement of Affairs
When discussing financial reporting, especially in the context of filing annual returns for NGOs and other organizations, it’s essential to understand the differences between audited financial statements and Statement of Affairs. While both serve as representations of an organization’s financial position, they differ significantly in purpose, preparation, and scope.
Below, we explore these differences in detail:
- Definition and Purpose
Audited Financial Statements
Audited financial statements are comprehensive financial documents that detail an organization’s financial performance and position over a specific period. These statements are reviewed and certified by an independent external auditor to ensure accuracy and compliance with accounting standards.
Purpose:
To provide a detailed, verified report of the organization’s financial health.
To instill confidence in stakeholders, including investors, donors, and regulatory bodies.
Statement of Affairs
A Statement of Affairs is a simplified financial summary, often used when an organization is yet to commence operations or has minimal financial activity. It provides a snapshot of the organization’s assets, liabilities, and capital at a particular point in time.
Purpose:
To provide a basic financial summary for compliance purposes when there is no operational activity.
- Scope of Information
Audited Financial Statements
These include:
Income Statement (Profit and Loss Statement): A detailed account of revenue and expenses.
Balance Sheet: A snapshot of assets, liabilities, and equity at the reporting date.
Cash Flow Statement: A record of cash inflows and outflows during the period.
Notes to the Accounts: Additional details to explain key financial figures.
Statement of Affairs
The scope of a Statement of Affairs is much narrower and typically includes:
Opening Assets: Cash, fixed assets, or any other starting resources.
Liabilities: Any debts or obligations at inception.
Net Position: A summary of assets minus liabilities.
- Applicability
Audited Financial Statements
Applicable to organizations that have commenced operations.
Required for entities with significant financial activity, including income, expenses, and investments.
Statement of Affairs
Used by organizations that are yet to begin operations.
Applicable when there are no income, expenditures, or significant financial transactions during the period.
- Level of Detail
Audited Financial Statements
Highly detailed and comprehensive, covering all aspects of financial activities.
Includes thorough explanations, breakdowns, and disclosures for stakeholder understanding.
Statement of Affairs
Simplified and concise, focusing only on the initial financial setup or minimal activity.
5. Filing Requirements
Audited Financial Statements
Required for annual returns when an organization has commenced operations and has financial activity.
Necessary for regulatory compliance and stakeholder reporting.
Statement of Affairs
Required for filing annual returns when an organization is yet to commence operations.
Used as a substitute for audited financial statements in such cases.
6. Cost and Effort
Audited Financial Statements
Preparation involves significant effort, including gathering financial data, engaging an external auditor, and conducting detailed reviews.
Costly due to the need for professional auditing services.
Statement of Affairs
Requires less effort to prepare, focusing only on basic financial details.
Cost-effective and less time-consuming.
How We Can Help
Whether your NGO needs assistance preparing a Statement of Affairs or audited financial statements, our team of experts is here to help. At CACAnnualReturns.com, we specialize in crafting CAC-compliant documents to ensure your organization remains in good standing. We provide:
Professional preparation of Statements of Affairs that comply with CAC requirements.
Guidance on submitting annual returns seamlessly.
Ongoing support to maintain compliance and avoid penalties.
Don’t let the filing of annual returns become a stumbling block for your NGO. Let us help you prepare a professionally crafted and CAC-compliant Statement of Affairs.
Our team of experts is ready to assist you in meeting your compliance obligations and ensuring the success of your organization.
Contact us today to get started on your financial reporting needs and experience seamless compliance with CAC regulations.
Adebayo Oluwole is a seasoned chartered accountant and a member of Chartered Institute of Taxation of Nigeria with over twenty years of experience. His expertise cuts across accounting, auditing and taxation. He has helped hundreds of individuals translate their dreams into reality by offering them pre and post registration services. His focus is to help SMEs grow in the marketplace.