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

CA Meera is auditing the financial statements of a charitable trust registered under a State Public Trusts Act. The trust runs a hospital and receives grants from a State Government for purchasing equipment. During planning, she wants to confirm that the trust has used the grants only for the purpose for which they were given. What is the most appropriate audit response?

The auditor should examine the sanction letters and conditions attached to the grant and test whether the expenditure on equipment complies with them. Representations or receipt checks alone do not give sufficient appropriate evidence that funds were applied for the stated purpose.

  1. AVerify the grant sanction letters and utilisation conditions and test that expenditure incurred on the equipment matches those conditionsCorrect
  2. BRely on the trustees' written representation that grants were applied properly, without any further verification
  3. CExamine only the bank statements to check that the grant money was received on time
  4. DTreat the grants as ordinary donations and test only the receipt side

Explanation

Grants come with specific conditions, so the auditor should inspect the sanction letters and compare actual utilisation against the conditions. A management representation alone is not sufficient audit evidence. Checking only receipts ignores the application of funds, which is the point of concern.

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