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CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities

Ananya & Co., chartered accountants, are appointed auditors of Shree Vidya Trust, a public charitable trust registered under the state Public Trusts Act. The trustees ask whether the audit of a trust differs from a company audit. Which of the following is the correct audit approach for the auditor?

The auditor should read the trust deed and verify that income was applied for the charitable objects, checking trustees' resolutions and legal compliance. The trust deed is the governing document, so ignoring it or investment restrictions, or applying only company law presentation, would be incorrect.

  1. AVerify that the trust's income has been applied for its charitable objects and that the trust deed and trustees' resolutions have been complied withCorrect
  2. BConfine the audit to arithmetical accuracy of the receipts and payments account because trusts have no governing document
  3. CApply only the Companies Act provisions on Schedule III presentation, since the trust deed is irrelevant to the audit
  4. DSkip verification of the trust's investments because trusts are exempt from restrictions on the mode of investment

Explanation

In a trust audit the auditor must study the trust deed and check that income and funds were applied for the objects stated in it, along with resolutions and applicable statutes. Option 1 is wrong since the trust deed is the primary governing document. Options 2 and 3 ignore the deed and the investment restrictions that apply to trusts.

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