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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 Shree Annapurna Charitable Trust, a public charitable trust registered under the Maharashtra Public Trusts Act. The trust runs a hospital and a school. While planning the audit, she wants to know the primary focus of the audit procedures on receipts of donations. Which audit response is most appropriate in this case?

The appropriate response is to test completeness of donations by checking the continuity of serial numbers in receipt books and tracing the receipts to the cash book and bank statements. Cash donations carry a risk of non-recording, and representation or limiting testing to large amounts does not give sufficient evidence.

  1. AVerify that all donations received are recorded, by examining the donation receipt books for continuity of serial numbers and tracing them to the cash book and bank statementsCorrect
  2. BVerify only the donations exceeding Rs 50,000 because small donations are always immaterial for a trust
  3. CConfirm donations by sending balance confirmation letters to all anonymous donors
  4. DRely on the management representation that all donations were recorded, since receipts of a trust cannot be tested independently

Explanation

For a trust, donations are a key completeness risk because cash donations may not be recorded. Checking the serial continuity of receipt books and tracing entries to the cash book and bank is the standard response. Limiting the test to large donations ignores the aggregate effect of small ones, and anonymous donors cannot be confirmed. Management representation alone is not sufficient audit evidence.

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