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

CA Rohan is the auditor of Vidya Charitable Trust, a public charitable trust registered under the State Public Trusts Act. While planning, he notes that the trust received earmarked donations for a school building fund. Which audit step is most appropriate for this specific feature?

The auditor should verify that earmarked donations were received per donor conditions, were applied only for the stated purpose such as the building fund, and are shown separately as a restricted fund. Checking bank deposits or relying only on management representations would not provide sufficient evidence.

  1. ATreat the donations as ordinary revenue and ignore the restriction on their use
  2. BVerify that earmarked funds were received as per donor terms, were kept and applied only for the stated purpose, and are disclosed as a separate fundCorrect
  3. CConfirm only that the donations were deposited in the bank, without checking utilisation
  4. DObtain a management representation and skip vouching of receipts and utilisation

Explanation

For earmarked donations the auditor checks the terms of the gift, vouches receipts, and examines whether application was for the specified purpose and properly shown as a restricted fund. Merely checking bank deposits or relying on representation alone is not sufficient appropriate evidence.

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