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

Vihaan & Co., Chartered Accountants, are appointed auditors of Sundaram Charitable Trust, which runs a hospital in Madurai. The trust receives a large part of its income as cash donations collected in donation boxes at the hospital entrance. The auditor is concerned about completeness of this income. Which response is most appropriate?

The auditor should examine controls over collection of donation-box cash, such as opening the boxes in the presence of two or more responsible persons, recording the count, and depositing it in the bank. Representations alone are insufficient, and anonymous donors cannot be confirmed, so control testing is the appropriate response.

  1. ARely on the trustees' written representation that all donations have been recorded, since donations are voluntary
  2. BReview the trust's control over opening the boxes, such as opening in the presence of two or more responsible persons, and check that counts are recorded and deposited in the bankCorrect
  3. CExclude donation income from the scope of the audit because it cannot be verified
  4. DConfirm donation income directly with each anonymous donor

Explanation

For cash donations the auditor cannot obtain external confirmation, so the focus is on the internal control over collection. Boxes should be opened by at least two responsible persons, counts recorded and promptly banked, and the auditor tests these. A management representation alone is not sufficient audit evidence, and anonymous donors cannot be confirmed with.

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