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

CA Nitin audits Shree Hospital Trust. During the audit he notices that donations received in kind (medical equipment) are not recorded, and the trust says no cash was involved. Which response is most appropriate?

Donations in kind are receipts of the trust and must be recorded, generally at fair value, with disclosure. The auditor should gather evidence from donor records and acknowledgements and, if the items stay unrecorded and the effect is material, report the departure in the audit report.

  1. AAccept the non-recording, since only monetary receipts are accounted
  2. BObtain evidence of donated items such as donor records and gift acknowledgements, and ensure they are recorded at fair value with proper disclosure, otherwise report the departureCorrect
  3. CRecord the items at nil value in the audit working papers and take no further action
  4. DAsk trustees to sell the equipment before year end to convert it to cash

Explanation

Donations in kind are receipts of the trust and must be accounted for, normally at fair value, with disclosure. The auditor should vouch them through donor records and acknowledgements, and report if not recorded and material. Ignoring them or advising a sale does not address the misstatement.

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