Not every association needs audited accounts. The Act draws the line by money received, and once an association crosses it the obligations are those of a company.
The three triggers
An incorporated association that, in any accounting period, (a) has an annual gross revenue greater than the threshold established by regulation; or (b) receives grants in any amount; or (c) receives donations from the public that exceed the threshold established by regulation, must prepare financial statements in accordance with section 79.
The draft Regulation fixes the annual gross revenue amount at K2,000,000 (regulation 7) and the annual donations amount at K500,000 (regulation 6). “Annual gross revenue amount” means total revenues from all sources including sales, land rents, royalties, dues, grants and donations; “annual donations amount” means total donations excluding membership dues; and “grants” means money or value given by the Government of Papua New Guinea or any political subdivision without intent of repayment (section 3 of the Associations Incorporation Act 2023). The grant trigger has no threshold: a K5,000 district services grant brings the association within section 78 for that year. Money from a foreign government or an international agency is a donation, not a grant, and counts towards the K500,000.
Exceptions
The Registrar may, “upon a showing of good cause”, determine that it would be unreasonable to require statements for a given period (section 78(2)). A member benefit association may opt out for a period if its rules provide for opting out and it did not receive public donations above the threshold or grants in that period (section 81); it cannot opt out of the gross revenue trigger. A public benefit association has no opt-out.
What the statements are
“Financial statements” means, for a balance date, a statement of financial position as at that date, an income and expenditure statement for the period, a statement of cash flows, any other statements the regulations require, and the notes (section 3). Section 79 requires them to be prepared within four months after balance date, to give a true and fair view, to comply with any applicable regulations, and to be dated and signed on behalf of the association by the committee members. The period between incorporation and the first balance date, and between any two balance dates, must not exceed 15 months (section 79(3)). Failure to prepare is an offence by every committee member with a fine of up to K10,000 or six months (section 78(3)).
Audit
Section 80 requires an association that must prepare financial statements to have them “audited by a qualified auditor certified by an association of accountants constituted in Papua New Guinea and appointed by the committee to conduct the audit”; failure is an offence with a fine of up to K5,000 or six months. Section 82 requires the auditor to be appointed at an annual meeting, to hold office until the next, and to be independent: the auditor “must ensure ... that the auditor’s judgment is not impaired through any relationship with, or interest in, the incorporated association”. If no auditor is appointed, or a casual vacancy is not filled within a month, the Registrar may appoint one. The auditor reports to the members on the work done, whether proper accounting records were kept, and whether the statements give a true and fair view (section 82(5)). Notice of an auditor’s resignation or removal must be given to the Registrar within 20 days (section 82(6) and (7)). Under section 83 an auditor may resign on written notice, the committee may fill a casual vacancy, and the committee may remove an auditor on 20 days’ notice, in which case the auditor may leave a written statement that must be kept with the accounting records.
Filing and disclosure
The audited statements are included in the annual report to members (section 76(b)) and filed with the annual return (section 77(3)), where they become part of the public register. Overseas associations are subject to Part VIII for their Papua New Guinea activities only (section 126). Section 3 provides that the Registrar may keep documents deemed confidential from inspection, and section 77(6) allows a gazetted declaration that annual return information does not form part of the register, but neither should be assumed to shelter financial statements.
Associations below the thresholds
An association that receives no grants, less than K500,000 in donations and less than K2,000,000 in revenue need not prepare formal financial statements or appoint an auditor under the Act, but it must still keep accounting records under section 72, prepare an annual report including whatever financial information its rules require, disclose the totals of donations, dues and grants under section 76, and comply with any audit provision in its own rules (Schedule item 11). Many small associations will continue to have their accounts examined by an honorary auditor under their rules; the Act simply does not require it.
Test the three triggers at each balance date. If a grant has been received or a threshold crossed, appoint a certified auditor at the next annual meeting (or ask the committee to appoint one to fill the gap and have the meeting confirm), have the statements prepared and signed within four months, and file them with the return. Budget for the audit fee; it is the price of receiving public money.
Sources
- Associations Incorporation Act 2023 — ss 3 (“annual donations amount”, “annual gross revenue amount”, “financial statements”, “grants”), 72, 76(b), 77(3), 78–83, 126, Schedule item 11
- Associations Incorporation Regulation 2026 (draft) — regs 6, 7; not gazetted; not on PacLII
Before relying on anything here, read the current text of the Associations Incorporation Act 2023 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.