ACCA F8 讲义 session11
SESSION 11 OTHER AUDIT AREAS
1. Auditing not for profit organizations
2. Auditing small organizations
Auditing not for profit organizations
If a full audit is to be carried out, because it is required by either statute or the organization’s constitution, th e auditors must consider the following:
●Risk factors
●Internal controls
●Audit approach
●Problems with small organizations
Risk factors
Inherent risk
●Donations and cash receipts
●Restricted funds
●Extent and nature trading activities
●Restrictions imposed by constitution
Control risk
●Board of trustees
?Time spent
?Skills & qualification
?Frequency & regularity of meetings
?Independence
●Lack of segregation of duties
●Competence of volunteer staff
Internal controls
Income
Collecting boxes
●Numerical control
●Sealing
●Regular control
●Dual control over counting & recording
Postal receipts
●Dual control over opening
●Immediate recording
●Independent checks
Donations in kind
●Custodian
●Register
Grants
All claims made
Income correctly applied
Expenditure
Restricted funds
●Separate records
●Trustees
Grants
●Record all requests and decisions
●Ensure genuine applicants
●Ensure money properly spent
Overall audit approach
Focus on:
●Completeness income
●Overstatement expenses
●Misapplication fund
Problems with small not for profit organizations
●Lack of segregation of duties
●Unqualified staff
●Volunteer resent formal procedures
Auditing small organizations
Owned by one or two individuals who control the operation and are involved on a day-to-day basis with the transactions
problems with small company audit
i. --the restricted scope for segregation of duties due to small
number of employees
ii. --the domination of the business by senior management
iii. --lack of effective management supervision (no qualified accountant to guide)
iv. --informal/inadequate record-keeping
v. --lack of checks on management itself (easy for management to override control)
vi. --management/owner may spend more time on sales/marketing while not on accounts
vii. --management may mix up personal expenses with company expenses
viii. --auditors may have to prepare accounts, if so, should clearly state in the engagement letter and get client accept full responsibility.
ix. --control risk is generally assessed as high and emphasis will be aimed towards substantive testing.
x. --management representation will be relied on but auditors should
not solely rely on that.
xi. --analytical review may not be applied due to insufficient information .(e.g. no budget, forecast)
independence issue
?Auditors may be involved with accounting, taxation and may act in executive position.
?Cost pressure. (auditors may tend to restrict costs and audit time)
Arguments for/against whether or not requiring an audit for small company
For not requiring an audit
?Audited accounts(simple) in small companies serve only a
compliance function and add little to management’s
knowledge and understanding of the business
?Audit fee is relatively expensive to a small co, and money
can be used elsewhere.
?Audited accounts filed a few months after the year end are
of little value to trade suppliers and customers. (already
established a trading relationship)
?Bankers will be in a position to make specific conditions for
providing finance (little need for a statutory audit.)
For requiring an audit
?--most auditors consider that still worthwhile
to audit a small company at a reasonable
cost
?--added credibility of the audited accounts
and provide information for various
stakeholders.
?--the audit is necessary to protect the
creditors (important in view of the limited
liability of shareholders.)
?--minority shareholders can also access to
full and reliable information about the
company.
?--provides good discipline which is important
when small companies grow into large
companies.
Impact on risk
Decreased by:
●Proprietor may exercise effective control
●Proprietor’s close involvement may prevent nr detect errors
Increased by:
●Lack of distinction between personnel and business transactions
●Profit may be manipulated
Internal controls
Limited although may be able to test and place some reliance on those operated by the proprietor or established through observation (if not actually documented)
Non-audit work
●Writing up the books
●Drawing up a trial balance
●Ascertaining year-end adjustments
The fact that the auditor has undertaken some accounting work for the client does not diminish the need for a proper audit. Separate teams of staff are usually allocated to the accounting and audit work
Audit approach
1) Substantive approach with no or very limed use of test of controls
2) Perform extensive analytical review procedures
3) Review
●Expense accounts for personal items
●Transactions after the year-end
4) Obtain management representations