Does an Association Need an Accountant?

When Does an Association Need an Accountant — Explanation in Three Questions

The question "Does an association need an accountant" is one of the most common questions we hear when an association begins its work or grows. The answer is not always simple — because it depends on the size of the association, the scope of donations, expenses, and whether it has employees. In short, it depends on the circumstances.

But there is a general rule worth remembering: if an association receives donations, uses public funds, or employs workers, it must maintain proper accounting records. And this is not just "order" — it is a legal responsibility to the authorities, to donors, and to the public.

On this page, we will go through everything you need to know: when it is a legal obligation, when it is wise to do so even if not required, what common difficulties we see in the field, and how to choose the right accountant for your association.

What is an Association in the Eyes of the Tax Authority and Reporting Authorities?

An association in Israel is a registered organization with a public or social purpose — not a business purpose. It can be an association for social assistance, sports, culture, education, health, etc. From a legal perspective, an association is considered an independent legal entity that has accounting obligations and reporting requirements.

Here is where it gets interesting: an association does not pay income tax on its income (under certain conditions), but it must maintain accounting records, submit reports, and in some cases be audited by an independent accountant. This is different from a sole proprietor or a company.

Legal Obligation: When is an Accountant Required?

This is the central question. The direct answer: it depends on the association's annual income.

Generally, an association whose annual income exceeds a certain amount (this amount changes from time to time in accordance with regulations) must present an audited annual report. This audit must be conducted by an independent accountant. This is not optional — it is mandatory.

Associations with lower income may be exempt from a full audit, but they still must maintain some records and submit a report to the tax authority and to the association authority (if such a local authority exists).

What is important to remember: even if you are not required to have a full audit, this does not mean you do not need to maintain accounting records. Record-keeping is almost mandatory for every association, including small ones.

What Reports Does an Association Need to File?

When we speak of "reporting," we are referring to several different types of reports. Each one is submitted to a different authority, in a different format, and at a different time.

Annual Report to the Registrar: This is the association's primary report. It summarizes the association's activities during the year—revenues, expenses, assets, liabilities, and changes in equity. This report must generally be filed within a certain number of months following the end of the reporting year. If the association is required to undergo an audit, the report must be signed by a Certified Public Accountant.

Tax Report: An association with certain income sources (for example, income from business activities not directly related to its public purpose) may be required to file a tax report. Even if the association is generally exempt from income tax, it must still file a Value Added Tax report if it is registered for VAT.

Employee Report and Social Security: If the association has employees (salaried or contractual), it must maintain payroll records, be covered by social security insurance, and so forth. This is regular reporting as with any other business.

One point that is not always clear: these reports must be orderly and accurate. This is not mere formality—it is transparency toward donors, toward the public, and toward the authorities.

Common Mistakes We See in Nonprofits

In recent years, we have worked with numerous nonprofits in the Petach Tikva and Ramat Gan areas, and we have observed several recurring patterns of problems. Here are the most common mistakes:

• Managing finances without documentation: A small nonprofit that receives direct donations but does not maintain receipts or accounting records. When it comes time to submit a report, there is no documentation. This is a problem.
• Mixing nonprofit funds with personal funds: A director or chairman using the nonprofit's bank account for personal matters. This is a serious problem — both legally and in terms of audit compliance.
• Delayed annual reports: A nonprofit that fails to submit an annual report on time risks having its registration revoked. This happens far too often.
• Failure to report large donations: Under the law, donations above a certain threshold must be reported. Nonprofits that fail to do so may face serious consequences.
• Improper payroll management: A nonprofit that employs workers but does not properly manage payslips or does not pay national insurance. This creates problems with the National Insurance Institute and also with the tax authorities.

Usually, these problems are only discovered when an audit occurs or when attempting to submit a report. And by then it is too late. Therefore, it is better to start correctly from the beginning.

How to Choose an Accountant for Your Nonprofit

Not every accountant is suitable for a nonprofit. Nonprofits have a different structure and reporting requirements than regular businesses. When you are looking for an accountant, it is advisable to ask several specific questions.

Experience with nonprofits: This is the first thing you should ask. Does the accountant have experience auditing nonprofits? Is he familiar with the specific regulations? If the answer is no, this could be a problem.

Understanding your nonprofit's mission: Every nonprofit is different. One focuses on education, another on sports, a third on social assistance. A good accountant should understand your mission and the specific reporting requirements applicable to you.

Fees and cost range: Audit costs depend on the size of the nonprofit, the scope of operations, and the complexity of reporting. This varies from nonprofit to nonprofit. A good accountant should provide an estimate early on.

Availability and communication: If the nonprofit has questions during the year, is the accountant available to answer them? This is important. Ben Or Kook offers digital services and direct access — so that questions are handled quickly.

When to Consult with a CPA — Even if You Think You Don't Need One

We find that there are cases where an association is not legally required to hire a CPA, but it is still wise to consult with one. Here are a few situations:

The association is growing: If you started small and now receive more donations or are changing the way you operate, this is a good time to consult with a CPA. You may now be required to undergo an audit.

New management: If there is a change in management or the board of directors, it is good to check that previous records are in order and there are no issues from the past.

New source of funds: If the association receives a grant from a government institution or a large donation from an external body, there are often specific reporting requirements. A CPA can help you understand what is required.

Inquiry from authorities: If any authority has contacted the association with questions about its reports, this is the time to consult with a CPA immediately. It is not advisable to handle this alone.