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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 Welfare Trust, a public charitable trust registered under a State Trusts Act. During the audit, the engagement partner wants to confirm that the trust's income has been applied for its stated objects. Which of the following is the most appropriate audit step in this regard?

The appropriate step is to verify the trust deed's objects clause and trustees' resolutions against actual application of funds, and check for diversion to trustees or related persons. Management representations or mere arithmetical checks cannot provide sufficient evidence that income was applied for the trust's objects.

  1. AVerify that the trust deed's objects clause and the trustees' resolutions support the application of funds, and examine whether any funds were diverted to trustees or related personsCorrect
  2. BRely solely on the management representation that all funds were applied for charitable purposes
  3. CCheck only the arithmetical accuracy of the receipts and payments account
  4. DConfirm only that the trust has a PAN and has filed its annual return

Explanation

In a trust audit, the auditor must read the trust deed and examine whether income and funds have been applied as per the objects and trustees' authority. Representations alone are not sufficient audit evidence, and arithmetical accuracy or PAN checks do not establish proper application of funds.

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