NGO AUDITSopportunities in Social Auditing

NIRC of ICAINew Delhi

5th February, 2011

CA SUDHIR VARMAFCA; CIA (USA)

Types of Audit

1. Transaction based audit2. System / Risk based audit3. Project based audit4. Donor based audit5. Efficiency audit6. Compliance / Statutory audit

- Income Tax - FCRA- Registering authority

Engagement

1. Appointment by appropriate authority2. Engagement letter3. Scope of audit4. Reporting requirements5. Fee

Audit approach

1. “Knowledge of business” objects; activities

2. Audit objectives3. Audit plan 4. Audit process5. Resources

Types of Audit

1. Transaction based audit

2. System / Risk based audit

3. Compliance/Statutory audit

Project based audit

1. Understand activity under the project2. Budget for the project3. Separate bank account / books of

accounts4. Direct revenues from the project

- grants - donations- revenue incomes

5. Direct project expenses – nature6. Allocation of expenses to projects7. Projects utilization certificates

Donor based audit

1. Donor sanction letter2. Terms & Conditions3. Budget4. Reporting requirements

Efficiency audit

1. Donors / Governing body / Trustees2. Verification of expenses beyond

accounting 3. External help of specialists4. Common sense / matured judgment5. Team leaders

Computerized Environment

1. Size of NGO / No. of transactions2. Familiarity with software in use3. Assess software controls4. Use auditing software5. Remain abreast with technology

Statutory Compliances

1. Income Tax Act2. FCRA / FEMA / RBI3. Registration laws4. Labour laws5. VAT / Service Tax6. Commercial laws7. Protection laws8. General laws

Social Audit

1. This is more holistic than financial audit2. Social audit of program/organization3. Covers social performance of an activity,

it’s relevance & effectiveness4. Evaluates input resources vs beneficiary

spread5. Audit process

1. Intent of organization2. Social book keeping & accounting3. Define measurable parameters4. MIS reports on program implementation5. Program ledgers6. Procedures, formats with relevant

information

Social Accounting

Audit report

1. Statutory formats2. Additional report to management

- scope- methodology- information verified- limitations/disclaimers- comments/observations- recommendations - actions taken/not taken on past recommendations

Audit report

1. Report to donors- scope- methodology- information verified- limitations/disclaimers- comments/observations- variations from budgets/programs- approvals of variations

Some issues

1. Transfer from project to general funds2. Definition of program expenses vs

administration expenses

Standards on Auditing

SA200 Basic Principles Governing an AuditSA200A Objectives and scope of the Audit of

Financial StatementsSA210 Agreeing the terms of Audit EngagementsSA220 Quality Control for Audit WorkSA230 Audit DocumentationSA240 The Auditor’s Responsibility relating to

Fraud in an audit of Financial StatementsSA250 Consideration of Laws and Regulations in an

Audit of Financial StatementsSA260 Communication of Audit Matters with those

Charged with Governance

SA299 Responsibility of Joint AuditorsSA300 Planning an audit of Financial StatementsSA320 Materiality in planning & performing an auditSA402 Audit Considerations Relating to Entities

Using Service OrganizationsSA500 Audit EvidenceSA501 Audit Evidence – Additional Consideration

for Specific ItemsSA505 External ConfirmationsSA510 Initial Engagements – Opening BalancesSA520 Analytical ProceduresSA530 Audit Sampling

Standards on Auditing

Auditing and assurance standards

SA540 Auditing Accounting Estimates, including fair value Accounting Estimates & related Disclosures

SA550 Related PartiesSA560 Subsequent EventsSA570 Going ConcernSA580 Written RepresentationsSA600 Using the work of another AuditorSA610 Using the work of an Internal AuditorSA620 Using the Work of an ExpertSA700 The Auditor’s report on Financial Statements SA710 Comparatives

Q & AThank you