17. Audits Of Different Types Of Entity

Question 1

What are most audits carried out on?

Answer 1

Non-specialised, profit-orientated entities

Question 2

Audit differences for: Not-for-profit entities

Unlike profit-oriented entities, these organisations do not have shareholder wealth maximisation as its primary objective.

Some not-for-profit entities will be limited companies and, therefore, may require an audit under the Companies Act 2006.

Answer 2

It will also be important to identify any other reporting requirements, which may be required by either a regulator, or constitution of the organisation

Question 3

Auditing other entities: Charities: What is charity accounting governed by?

Answer 3

Charities Statement of Recommended Practice (SORP)

Question 4

What accounts do charity FS include?

Answer 4

Statement of financial activities (SOFA)
Summary income and expenditure account
Balance sheet
Cash flow statement
Notes

Question 5

Charity FS: What does the SOFA show?

Answer 5

1. Resources available and expenditure incurred
2. A reconciliation of changes in funds

Question 6

Charity FS: When is a Summary income and expenditure account needed?

Answer 6

1. If the company prepares accounts under Companies Act 2006
2. The governing instrument requires
   it

Question 7

Charity FS: What does the balance sheet show?

Answer 7

Assets, liabilities and funds including an indication of any restricted funds

Question 8

What must charity accounts include?

Answer 8

1. Legacies to be recognised when probable rather than certain
2. Disclosure of total employee benefits received by key management personnel
3. Disclosure of the number of staff receiving pay of over £60,000
4. A list of institutional grants

Question 9

Unincorporated charities: Does it require an audit: DOES require audit

Answer 9

1. Gross income is > £1m

OR

2. Gross assets > £3.26m
   AND
   Gross annual income > £250,000

Question 10

Unincorporated charities: Does it require an audit: Independent verification of the financial statements

Answer 10

Gross income 25k-1m

Question 11

Unincorporated charities: Does it require an audit: Independent verification of the financial statements BY QUALIFIED ACCOUNTANT

Answer 11

Income over 250k

Question 12

Unincorporated charities: Does it require an audit: Send a copy of accounts to the Charity Commission

Answer 12

Gross income > £25,000

Question 13

May a charity’s governing document specify a particular type of engagement

Answer 13

Yes

Question 14

Rule for what standard of scrutiny a charity must be audited by?

Answer 14

The charity must follow the higher standard of scrutiny required by either
1. The legal framework
2. The governing document

Question 15

What is a limited assurance engagement, with work likely to be limited to procedures such as:
a. review of accounting records
b. enquiries of management
c. analytical procedures.

Answer 15

INDEPENDENT VERIFICATION

Question 16

Independent verification: Does the independent verifier give an opinion on the truth and fairness of the accounts?

Answer 16

NO

But reports on whether matters have come to their attention indicating that:

a. proper accounting records have not been kept
b. the accounts do not comply with such records
c. the accounts fail to comply with relevant regulation

Question 17

Auditing a charity process

Answer 17

Same as for all assurance engagements

a. Acceptance
b. Planning
c. Evidence
d. Reporting

Question 18

Can Auditors make generalisations about charities, such as
a. risks associated with cash donations
b. lack of segregation of duties due to use of volunteers
c. grant income

Answer 18

YES

Though charities can be very different e.g. size

Question 19

What comprises:
a. central government
b. local government
c. companies running outsourced public services.

Answer 19

PUBLIC SECTOR

only required to have a basic understanding of the differences between public sector audits and non-specialized audits

Question 20

Do public sector organizations prepare FS?

Answer 20

Yes

Question 21

Public Sector: Who decides how public money is spent?

Answer 21

House of commons

Question 22

Public Sector: Who examines public expenditure?

Answer 22

Committee of public accounts

Question 23

Public Sector: Who audits central gov depts and agencies
e.g. passport agency

Answer 23

National Audit Office

Question 24

Public Sector: Who manages contracts for the audit of local government, health, housing, criminal justice, fire and rescue
(previously the responsibility
of the Audit Commission)

Answer 24

Public Sector Audit Appointments Ltd

Question 25

What is the main purpose of public sector audit?

Answer 25

Accountability

(Audit helps ensure public money is spent wisely and handled with integrity)

Question 26

What is a representative of the major public audit bodies in the UK?

Answer 26

The Public Audit Forum

Question 27

Public Audit Forum 3 key principles

Answer 27

1. Independence of public sector auditors from the bodies they audit
2. The wide scope of audit in the public sector
3. The ability of public sector auditors to make their results available to the public

Question 28

Do ISAs apply to public sector audit?

Answer 28

YES

Question 29

What extra things are added to audit of public sector entities?

Answer 29

1. Regularity
   (Law & regulation)
2. Propriety
   (Ethically, with integrity and according to any existing standards of conduct)
3. Value for money
   In terms of
   a. economy (spend less)
   b. efficiency (spend well)
   c. effectiveness (spend wisely)