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

CA Nisha is the auditor of Pragati Polytechnic, a private educational institution run by a society, and is examining tuition fee income. Fees are collected in cash by several counters, and some students pay in advance for the next academic year. Which audit procedure best addresses the risk of incomplete and incorrectly timed fee income?

The best procedure is to reconcile fee receipts with student registers and fee demand records, and confirm that fees received for the next academic year are treated as advance liabilities. This tests completeness and proper cut-off, which representations or last-week testing cannot do.

  1. ACompare fee receipts with the students' register and fee demand records, and check that fees received in advance are carried forward as a liability rather than taken as income of the current yearCorrect
  2. BAccept the fee income reported by the principal after obtaining a written representation
  3. CVerify only the fees received in the last week of the year
  4. DCheck that all fees are credited to income in the year of receipt, whether or not they relate to the next year

Explanation

Fee income is tested by reconciling receipts with the student register, fee schedules and demand records for completeness, and by checking cut-off so that advance fees are deferred to the period to which they relate. Accepting representation alone is insufficient evidence. Recognising advance fees as current income overstates income.

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