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

CA Divya audits Navjyoti Educational Society, which runs a school and receives government grants for teachers' salaries and building construction. Which audit step is most appropriate for the grants?

She should examine the sanction letters and conditions, confirm that grants were used for the stated purpose, and verify the correct accounting of revenue and capital grants. Checking only bank receipts or treating all grants as current income ignores the conditions attached to them.

  1. AAccept the grant amounts in the books without examining sanction letters
  2. BExamine sanction letters and conditions, verify that grants were utilised for the stated purpose, and check the accounting treatment of revenue and capital grantsCorrect
  3. CTreat all grants as income of the year of receipt regardless of their conditions
  4. DVerify only the bank credit and ignore utilisation

Explanation

Grants are tied to conditions, so the auditor reviews sanction letters, checks utilisation for the intended purpose and confirms revenue and capital grants are accounted for appropriately. Treating all as income or checking only the bank credit would miss conditions and misuse.

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