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EXAM LATEST CIRCULAR BY ICAP A circular by ICAP dated February 25, 2015 says that

EXAM LATEST CIRCULAR BY ICAP

A circular by ICAP dated February 25, 2015 says that Audit of Not for Profit Organization is examinable

although it is not there in the LOs. Therefore to be on the safe side just go through the following summarized notes so that you can manage any question coming from this topic. Please inform others too!!

NOT-FOR-PROFIT ORGANIZATIONS (NFPO)

In commercial organizations the objective is to make profit for shareholders but in case of NFPOs the

objective is very different. It is usually the provision of a service to a society as a whole or to a group in

society. Examples are charities, clubs & societies and publicly owned organizations. The difference in the objectives will influence the approach to audit.

THE AUDIT APPROACH

Planning

1.

Objectives & scope of audit

2.

Local regulations that apply

3.

Environment in which the organization operates

4.

Form & Content of the FS

5.

Key audit areas including risk

Risk

1.

Audit Risk Analysis (IR,CR,DR)

2.

Inherent Risk- Reflecting the nature of entity’s activities

3.

Control Risk- Controls over cash collection & payments

4.

Detection Risk- Auditor specific risk

Internal Control

1. Segregation of Duties

2. Authorization of spending

3. Cash controls

4. Controls over income (Donations, collection, membership fee, grants)

5. Use of funds only for authorized purposes

Audit Evidence

1. Substantive approach preferred in small NFPOs

2. Focus on completeness of transactions & possibility of misuse of funds

Reporting

1. Whether report is required by law

2. In case of voluntary audit the report should reflect the agreed objective of audit

by law 2. In case of voluntary audit the report should reflect the agreed objective of

Other Factors

Other Factors 1. Cash is a significant area 2. Higher ROMM in income particularly in case

1. Cash is a significant area

2. Higher ROMM in income particularly in case of donations and money raised informally

3. Certain finds to be used for specific purposes only

4. Proportion of revenue used in administrations

COURTESY:

Sir Fahad Ahmed Hashmi