Chapter 17: Audits of different types of entity

Question 1

What is charity accounting governed by?

Answer 1

The Charities Statement of Recommended Practice (SORP)

Question 2

What do charity accounts include?

Answer 2

• Statement of financial activities (SOFA) - shows resources available and expenditure incurred/a reconciliation of changes in funds
• Summary income and expenditure account: only needed if the company prepares accounts under Companies Act 2006 or the governing instrument requires it
• Balance sheet: shows assets, liabilities and funds including an indication of any restricted funds
• Cash flow statement: reconciles profit to movements in cash
• Notes: notes to the accounts provide further detail

Question 3

What MUST charity accounts include?

Answer 3

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

Question 4

When do charities require audit?

Answer 4

When:

• Gross income is more than £1m OR
• Gross assets are more than £3.26m and gross annual income is more than £250,000

Question 5

When do charities require independent verification of the financial statements?

Answer 5

Gross income between £25,000 and £1m

must be by a qualified accountant if income more than £250,000

Question 6

When must a charity send a copy of accounts to the Charity Commission?

Answer 6

When gross income is more than £25,000

Question 7

What is a charity’s governing document?

Answer 7

A charity’s governing document may specify a particular type of engagement - the charity must follow the higher standard of scrutiny required by either the legal framework or the governing document

Question 8

What is an independent verification?

Answer 8

Independent verification is a limited assurance engagement, with work likely to be limited to procedures such as:

• review of accounting records
• enquiries of management
• analytical procedures

Question 9

What does the examiner report on during an independent verification?

Answer 9

The examiner does not give an opinion on the truth and fairness of the accounts, but reports on whether matters have come to their attention indicating that:

• proper accounting records have not been kept
• the accounts do not comply with such records
• the accounts fail to comply with relevant regulations

Question 10

What is the process for auditing a charity?

Answer 10

Same as for all assurance engagements:

Acceptance, Planning, Evidence, Reporting

Question 11

What does the public sector comprise?

Answer 11

• Central government
• Local government
• Companies running outsourced public services

All these organisations prepare financial statements

Question 12

What is the main purpose of public sector audit?

Answer 12

The main purpose of public sector audit is accountability

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

Question 13

What is the Public Audit Forum?

Answer 13

The Public Audit Forum is a representative of the major public audit bodies in the UK, and sets out three key principles:

• independence of public sector auditors from the bodies they audit
• the wide scope of audit in the public sector
• the ability of public sector auditors to make their results available to the public

ISAs apply to public sector audit work. Where applicable, the standards contain ‘Considerations specific to public sector entities’ which highlight some of the different considerations that apply to public sector audits

Question 14

What does public sector audit extend to?

Answer 14

• Regularity: Transactions are carried out in accordance with legislation and regulations
• Propriety: Transactions and business are carried out ethically, with integrity and according to any existing standards of conduct
• Value for money: Best use is being made of resources in terms of economy (spend less), efficiency (spend well), effectiveness (spend wisely)