Auditing &

Investigations II

Audit of Not-For-Profit
Organisations
Key issues

 Audit of NFP

 Audit Planning

 Audit Evidence

 Audit of Reporting
1. Introduction
When carrying out an audit of a not-for-
profit organisation, it is vital that the
auditor establishes:

 Whether a statutory audit is required

 If a statutory audit is not required,
what the objectives of the
engagement are
 What the engagement is to report on?
 To whom the report should be
addressed
 What form the report should take?
2. Audit of NFP
Key Considerations

 Is a statutory audit is required?

 If So, the auditors will be required to
produce the statutory audit opinion
concerning the truth and fairness of
financial statements.
 Where a statutory audit is not
required,
 Then audit may be conducted for
the benefit of stakeholders and
funders.
3. Audit Planning
 The audit risks associated with not-
for-profit organisations may well be
different from other entities.
 When planning the audit of a not-
for-profit organisation, the auditors
should particularly consider the
following:

o The scope of the audit

o Recent recommendations of the

regulatory bodies
Continued…

 The acceptability of accounting

policies adopted.
 Changes in circumstances in the sector
in which the organisation operates.
 Past experience of the effectiveness of
the organisation's accounting system.
 Key audit areas.
 The amount of detail included in the
financial statements on which the
auditors are required to report.
 4. Audit risks
 Cash may be significant in not-for-profit
organisations and controls may be limited.
 Income may well be a risk area, particularly
where money is donated or raised
informally.
 Small not-for-profit organisations will
generally suffer from internal control
deficiencies, such as lack of segregation of
duties and the use of unqualified staff.
 The auditors will have to consider
particularly carefully whether they will be
able to obtain adequate assurance that the
accounting records.
5. Audit Evidence

Obtaining audit evidence

may be a problem,
particularly where
organisations have
informal arrangements
and this may impact on
the auditor's report.
6. Procedures for NFP
 Understatement or
incompleteness of the
recording of all income,
including gifts in kind, cash
donations and legacies.
 Overstatement of cash grants
or expenses.
 Misanalysis or misuse in the
application of funds, including
the misuse of taxpayers' funds
if the entity is government
funded.
Continued…

 Misstatement or omission
of assets, including donated
properties and investments.
 The existence of restricted
or uncontrollable funds in
foreign or independent
branches.
7. Key Audit Areas

Loss of income
through fraud
Recognition of
government funding
Recognition of income
from professional
fundraisers
Continued..

Recognition of income
from branches,
associates or subsidiaries
Income from informal
fundraising groups
Income from grants
8. Audit Reporting

 The nature of the report

will depend on statutory
and entity requirements,
but it should conform to
the criteria in ISA 700
Forming an opinion and
reporting on financial
statements.
Key Reporting Issues for the
auditor
The auditor should ensure that they
make the following matters clear:
 The addressees of the report
 What the report relates to
 The scope of the engagement
 The respective responsibilities of
auditors and management/trustees
/directors
 The work done
 The opinion drawn
 End

Thank you for

your attention