Auditing & Investigations II Audit of Not-For-Profit Organisations

Audit of NFP Audit Planning Audit Evidence Audit of Reporting Key issues Audit of NFP Audit Planning Audit Evidence Audit of Reporting

1. Introduction When carrying out an audit of a not-for- profit organisation, it is vital that the auditor establishes: Whether a statutory audit is required If a statutory audit is not required, what the objectives of the engagement are What the engagement is to report on? To whom the report should be addressed What form the report should take?

2. Audit of NFP Is a statutory audit is required? Key Considerations Is a statutory audit is required? If So, the auditors will be required to produce the statutory audit opinion concerning the truth and fairness of financial statements. Where a statutory audit is not required, Then audit may be conducted for the benefit of stakeholders and funders.

3. Audit Planning The audit risks associated with not- for-profit organisations may well be different from other entities. When planning the audit of a not- for-profit organisation, the auditors should particularly consider the following: The scope of the audit Recent recommendations of the regulatory bodies

Continued… The acceptability of accounting policies adopted. Changes in circumstances in the sector in which the organisation operates. Past experience of the effectiveness of the organisation's accounting system. Key audit areas. The amount of detail included in the financial statements on which the auditors are required to report.

4. Audit risks Cash may be significant in not-for-profit organisations and controls may be limited. Income may well be a risk area, particularly where money is donated or raised informally. Small not-for-profit organisations will generally suffer from internal control deficiencies, such as lack of segregation of duties and the use of unqualified staff. The auditors will have to consider particularly carefully whether they will be able to obtain adequate assurance that the accounting records.

5. Audit Evidence Obtaining audit evidence may be a problem, particularly where organisations have informal arrangements and this may impact on the auditor's report.

6. Procedures for NFP Understatement or incompleteness of the recording of all income, including gifts in kind, cash donations and legacies. Overstatement of cash grants or expenses. Misanalysis or misuse in the application of funds, including the misuse of taxpayers' funds if the entity is government funded.

Continued… Misstatement or omission of assets, including donated properties and investments. The existence of restricted or uncontrollable funds in foreign or independent branches.

Loss of income through fraud Recognition of government funding 7. Key Audit Areas Loss of income through fraud Recognition of government funding Recognition of income from professional fundraisers

Recognition of income from branches, associates or subsidiaries Continued.. Recognition of income from branches, associates or subsidiaries Income from informal fundraising groups Income from grants

8. Audit Reporting The nature of the report will depend on statutory and entity requirements, but it should conform to the criteria in ISA 700 Forming an opinion and reporting on financial statements.

Key Reporting Issues for the auditor The auditor should ensure that they make the following matters clear: The addressees of the report What the report relates to The scope of the engagement The respective responsibilities of auditors and management/trustees /directors The work done The opinion drawn

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