The document discusses the Financial Reporting Council of Nigeria (FRCN) requiring not-for-profit organizations like churches and mosques to comply with its financial reporting standards. While the FRCN's mandate applies to companies, the definition of "public interest entity" in its legislation does not explicitly include religious and charitable groups. However, the FRCN has expanded this definition to cover such organizations. The article examines arguments for and against this intervention in light of some not-for-profits being used more for wealth accumulation rather than charitable purposes. Compliance with financial reporting may help regulate tax liability for organizations engaging in profitable activities.

1. However, there exist valid arguments
in favour of not-for-profit organisa-
tions being required to adhere to the
Council‟s standards; arguments which
are often made against the backdrop
of commercial activity injected into
the affairs of these institutions, or
where the existence of such „not-for-
profit‟ institutions is in actual sense a
vehicle for accumulation of wealth by
their proprietors. One cannot deny
that a charitable institution delving
into profitable activities dilutes its
status as a „not-for-profit organisation‟
in which case regulatory supervision is
justified to ascertain issues of tax li-
ability to the extent of profits made.
Charitable organisations are ordinarily
exempted from tax liabilities; which is
right, regard had for the purposes for
which such organisations ordinarily
are founded.. It is to be noted how-
ever that with the application of the
FRCN‟s rules, the affairs of such or-
ganisations will be subjected to greater
scrutiny, and where a charitable or-
ganisation is audited and found to be
directly or indirectly engaging in prof-
itable activity, it will consequently be
liable to fulfil its tax obligations. Es-
tate settlors would want to be con-
scious of this; especially in terms of
instructions to Trustees when a Char-
ity/Trust is set up at the outset.
To conclude, the intervention of the
FRCN is vital; to curb the activities of
many so called „not-for-profit‟ entities
which in reality are more for wealth
accumulation for shadow proprietors;
than for altruistic objectives. Those
established for clear, charitable pur-
poses are not likely to be troubled by
the FRCN‟s interventions; indeed they
are likely to welcome them.
When the Financial Reporting
Council of Nigeria (FRCN) first
appeared to turn its attention to the
affairs of Not-For-Profit organisa-
tions such as churches and
mosques, it was met with a level of
resistance and even scepticism; the
FRCN was not known for pursu-
ing religious institutions and the
like. Moreover, many questioned
whether it even had the power to
do so. This month‟s edition of the
Private Client Update looks at the
propriety of the FRCN requiring
churches and mosques to comply
with its rules on financial reporting.
This topic is examined in light of
the FRCN‟s most recent reiteration
of its intention to enforce financial
reporting standards for not-for-
profit organisations and against a
background of a creeping trend by
many a settlor to set up a charity.
The FRCN is an independent regu-
latory body under the supervision
of the Federal Ministry of Industry,
Trade and Investment. It targets
institutional weakness and creates
standards for accounting, auditing,
valuation and corporate govern-
ance practices in public and pri-
vate sectors of the Nigerian econ-
omy. According to the Financial
Reporting Council of Nigeria Act
2011 (the Act), some of the func-
tions and powers of the FRCN
include, amongst others, enforcing
compliance with accounting, audit-
ing, corporate governance and fi-
nancial reporting standards in Ni-
geria; reviewing financial state-
ments and reports of public inter-
est entities, etc. To facilitate the
performance of these functions,
the Council may issue rules and
guidelines for the implementation of ac-
counting standards.
Pursuant to its powers under the Act, the
Council mandates that companies in both
the private and public sector must adopt
the International Financial Reporting Stan-
dards (IFRS). The question now is whether
this requirement applies to religious institu-
tions and other not-for-profit organisations.
The Act clearly states that one of the func-
tions of the FRCN is to develop accounting
and financial reporting standards to be ob-
served in the preparation of financial state-
ments of public interest entities. What is
interesting is how the Act defines a “public
interest entity” and whether this definition
applies to religious and charitable institu-
tions. A public interest entity is defined as
“governments, government organizations,
quoted and unquoted companies and all
other organizations which are required by
law to file returns with regulatory authori-
ties...” Strictly speaking, this definition can-
not necessarily be construed to include reli-
gious and charitable institutions, as they are
generally not required by law to file returns
by virtue of their not being profit-oriented.
Thus, it is interesting that the expression
“public interest entity” as used under the
Act has been expanded to cover religious
institutions and other not-for-profit organi-
sations.
NOT-FOR-PROFIT ORGANISATIONS—THE INTERNATIONAL FINANCIAL REPORTING STANDARDS
PRIVATE CLIENT UPDATE
A PUBLICATION OF THE PRIVATE CLIENT DEPARTMENT DECEMBER 2015 EDITION
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