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.
2.
3.
4.
5.

Objectives & scope of audit

Local regulations that apply
Environment in which the organization operates
Form & Content of the FS
Key audit areas including risk

Risk
1.
2.
3.
4.

Audit Risk Analysis (IR,CR,DR)

Inherent Risk- Reflecting the nature of entitys activities
Control Risk- Controls over cash collection & payments
Detection Risk- Auditor specific risk

Internal Control
1.
2.
3.
4.
5.

Segregation of Duties
Authorization of spending
Cash controls
Controls over income (Donations, collection, membership fee, grants)
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
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Other Factors
1.
2.
3.
4.

Cash is a significant area

Higher ROMM in income particularly in case of donations and money raised informally
Certain finds to be used for specific purposes only
Proportion of revenue used in administrations

COURTESY:

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Sir Fahad Ahmed Hashmi