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

CA Meera is the auditor of Shree Annapurna Charitable Trust, which runs a free meal programme and is registered under a state public trusts law. During the audit she finds that the trust's governing deed requires the surplus funds to be invested only in specified securities, but the trustees have placed a part of the funds in a trustee's family business. What is the most appropriate step for the auditor in relation to this matter?

The auditor should examine the trust deed and report the non-compliance with its investment provisions. The deed governs how funds may be invested and applied, so placing funds in a trustee's family business is a deviation that must be reported, not ignored or treated as routine.

  1. AIgnore it, as the deed has no bearing on the financial statements of a trust
  2. BExamine the trust deed and report the non-compliance with its investment provisions in the audit reportCorrect
  3. CResign immediately because trusts cannot be audited when deed provisions are violated
  4. DTreat it as an acceptable related party transaction needing no further reporting

Explanation

In a trust audit the auditor must study the trust deed and check that investments and application of funds comply with it. A deviation such as investing in a trustee's business must be reported. Ignoring the deed is wrong because the deed is the primary governing document, and resignation is not required merely because non-compliance exists.

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