Audit of Charitable & Religious Institutions

1 Why is Audit of Charitable & Religious TrustsRequiredWhy is Audit of Charitable & Religious , , POINTSGENERAL POINTS In order to Audit a Charitable or Religious Trust , the auditorwill have to check the following of the trustBye Laws,Rules andRegulationsApplicationof FundsProvisionsoftrustactofconcernedstat esConstitutionBye Laws,Rules andRegulationsObjectsApplicationof FundsMinutes ofmeeting ofTrusteesProvisionsoftrustactofconcerne dstatesAUDITING THE RECEIPTSAUDITING THE RECEIPTSRECEIPTSSOURCESC ontribution& GrantFundRaisingProgramRECEIPTSSOURCESM embershipFeesSubscriptionCHECK LIST FOR ROUTINE ITEMSCHECK LIST FOR ROUTINE ITEMS(i) Check Letter of Appointment and ensure scope of Audit & responsibilityof the auditor us clearly indicated.(ii) See that the necessary resolutions are passed and the authorityhas signed letter of appointment.(iii) Obtain previous Audit report and communicate withprevious auditor, if any(iv) Obtain books of account along with list showing booksmaintained by trust.

2 (v) Obtain certified copy of balance sheet and income& expenditure for period under Audit .(iii) Obtain previous Audit report and communicate withprevious auditor, if anyCHECK LIST FOR ROUTINE ITEMS LIST FOR ROUTINE ITEMS CONTD.(viii)Procure certified copy of trust deed showing objects andconditions of Trust.(vii) Obtain Certificate about correctness of opening balances ofvarious assets &Liab. , if any(vi) Obtain certified copy of balance sheet and income & expenditureaccount of last year, if any(viii)Procure certified copy of trust deed showing objects andconditions of Trust.(ix) Evaluate Internal Control Systems and determineextent of further checking. Also enquire about system ofaccounting.(x) Obtain Annexure to form 10B & 10BB and seetrustees have certified all the report-FORM 10 B & 10 BBAudit report-FORM 10 B & (b)Forreligious&CharitableTrustRule16 CCundersection10(23C)MeaningAuditreportu /s12A(b)oftheIncomeTaxAct, (23C)oftheIncome-taxAct,1961,inthecaseof anyfundortrustorinstitutionoranyuniversi tyorothereducationalinstitutionoranyhosp italorothermedicalinstitutionMeaningAudi treportu/s12A(b)oftheIncomeTaxAct, (23C)oftheIncome-taxAct,1961,inthecaseof anyfundortrustorinstitutionoranyuniversi tyorothereducationalinstitutionoranyhosp italorothermedicalinstitution Thescopeofthisguidancenoteisrestrictedto theauditoftheinstitutionsprescribedunder section12A(1)(b).

3 (1)(b) , sGuidance note on Audit of publiccharitable trustGuidance note on Audit of publiccharitable trust Thescopeofthisguidancenoteisrestrictedto theauditoftheinstitutionsprescribedunder section12A(1)(b). (1)(b) , s TheprincipalaimofthisauditistoenabletheA ssessingOfficertosatisfyhimselfabouttheg enuinenessoftheclaimforexemptionundersec tion11andalsowhethertheinstitutionhascom pliedwithalltherequirementsprescribedbyt hestatute. Theaccountanthastoexaminethebalancesheet andtheprofitandlossandgiveanopinionwheth ertheyexhibitatrueandfairview. TheaccountantshouldnotethattheSA sissuedbytheICAI wouldbeapplicabletotheauditundersection1 2A(1)(b) Asinthecaseofotherprofessionalassignment s,theaccountantshouldcomplywiththe CodeofEthics issuedbytheICAI inconductingtheauditundersection12A(1)(b )Responsibilityof an accountantResponsibilityof an accountant TheprincipalaimofthisauditistoenabletheA ssessingOfficertosatisfyhimselfabouttheg enuinenessoftheclaimforexemptionundersec tion11andalsowhethertheinstitutionhascom pliedwithalltherequirementsprescribedbyt hestatute.

4 Theaccountanthastoexaminethebalancesheet andtheprofitandlossandgiveanopinionwheth ertheyexhibitatrueandfairview. TheaccountantshouldnotethattheSA sissuedbytheICAI wouldbeapplicabletotheauditundersection1 2A(1)(b) Asinthecaseofotherprofessionalassignment s,theaccountantshouldcomplywiththe CodeofEthics issuedbytheICAI inconductingtheauditundersection12A(1)(b ) Clause(b)ofsub-section(1)ofsection12 AoftheActrequiresauditifthe totalincome ,thenauditundertheActisnotrequired. Question:WhetherContributionswithspecifi cdirectionthattheyshallformpartofthecorp usincludedinincomementionedabove? Answer:Asperthisguidancenote,fordetermin ingtheceilinglimitofthemaximumamountwhic hisnotchargeabletoincometaxforthepurpose ofeligibilitytoauditundersection12A(1)(b ), ,incomesexemptundersection10, , is Audit RequiredWhen is Audit Required Clause(b)ofsub-section(1)ofsection12 AoftheActrequiresauditifthe totalincome ,thenauditundertheActisnotrequired.

5 Question:WhetherContributionswithspecifi cdirectionthattheyshallformpartofthecorp usincludedinincomementionedabove? Answer:Asperthisguidancenote,fordetermin ingtheceilinglimitofthemaximumamountwhic hisnotchargeabletoincometaxforthepurpose ofeligibilitytoauditundersection12A(1)(b ), ,incomesexemptundersection10, ,arenottobeincludedforascertainingwhethe rtheincomeexceedsthemaximumamountwhichis notchargeabletoincometax. Someotherpoints InComputationmadebytheinstitution, ,subsequentlyitmaysotranspirethatthetota lincomeexceedsthemaximumamountwhichisnot chargeabletoincometaxonaccountofcircumst anceswhichwerenotknownoriginally[ (2)(b)]=Insuchcasesthereportonauditcould besubmittedwitharevisedreturn. Whenstatelegislationsrelatingtotrustsand charitableinstitutionsprovidecompulsorya uditirrespectiveofIncome= is Audit is Audit Someotherpoints InComputationmadebytheinstitution, ,subsequentlyitmaysotranspirethatthetota lincomeexceedsthemaximumamountwhichisnot chargeabletoincometaxonaccountofcircumst anceswhichwerenotknownoriginally[ (2)(b)]=Insuchcasesthereportonauditcould besubmittedwitharevisedreturn.

6 Whenstatelegislationsrelatingtotrustsand charitableinstitutionsprovidecompulsorya uditirrespectiveofIncome=Auditintermsofs tatutoryprovisionsofrelevantstateact. Thedonationsreceivedbyaninstitutionwhose incomeareexemptundersections11and12orcla use(23)orclause(23AA)orclause(23C)ofsect ion10oftheActareeligiblefordeductionunde rsection80 GprovidedtheinstitutionisapprovedbytheDi rectorGeneral(exemptions)/Commissionerof Income-taxundersection80G(5)(vi). ,unlessthereisaspecificrequirementintheA ctitselforunderanyrule/formprescribedthe reunderrequiringtheauditortoverifycertai nmattersinrelationtootherlaws, ,ifthenoncompliancewiththeprovisionsofan yotherlawwouldleadtothecontraventionofth eprovisionsoftheActinsofarasitrelatestoa uditundersection12 Aandaffectsthetruthandfairnessthereof,th enaloneitisthedutyoftheaccountanttoverif ythecompliancewiththeprovisionsofotherla w(s)When is Audit is Audit Thedonationsreceivedbyaninstitutionwhose incomeareexemptundersections11and12orcla use(23)orclause(23AA)orclause(23C)ofsect ion10oftheActareeligiblefordeductionunde rsection80 GprovidedtheinstitutionisapprovedbytheDi rectorGeneral(exemptions)/Commissionerof Income-taxundersection80G(5)(vi).

7 ,unlessthereisaspecificrequirementintheA ctitselforunderanyrule/formprescribedthe reunderrequiringtheauditortoverifycertai nmattersinrelationtootherlaws, ,ifthenoncompliancewiththeprovisionsofan yotherlawwouldleadtothecontraventionofth eprovisionsoftheActinsofarasitrelatestoa uditundersection12 Aandaffectsthetruthandfairnessthereof,th enaloneitisthedutyoftheaccountanttoverif ythecompliancewiththeprovisionsofotherla w(s) Apartfromtherequirementsastoauditofinsti tutionsascontainedinsection12A(1)(b), (1)(a) , ,whichisprescribedunderRule17 AoftheRulesWhen is Audit is Audit Apartfromtherequirementsastoauditofinsti tutionsascontainedinsection12A(1)(b), (1)(a) , ,whichisprescribedunderRule17 AoftheRules Inthecaseofaninstitution,ASwillnotapplyi fallactivitiesofsuchinstitutionsarenotof commercial,industrialorbusinessnature( ).Inotherwords,exclusionofaninstitutionf romtheapplicabilityoftheASwouldbepermiss ibleonlyifnopartoftheactivityofsuchinsti tutioniscommercial, ,industrialorbusinessinnature,thenitcann otclaimexemptionfromtheapplicationofAS.

8 Further, (2) , StandardsAccounting Standards Inthecaseofaninstitution,ASwillnotapplyi fallactivitiesofsuchinstitutionsarenotof commercial,industrialorbusinessnature( ).Inotherwords,exclusionofaninstitutionf romtheapplicabilityoftheASwouldbepermiss ibleonlyifnopartoftheactivityofsuchinsti tutioniscommercial, ,industrialorbusinessinnature,thenitcann otclaimexemptionfromtheapplicationofAS. Further, (2) ,iftheycarryonabusiness. Thisreporthastobegivenbyanaccountantwho IsaCharteredAccountantdefinedinclause(b) ofsub-section(1)ofsection2oftheChartered AccountantsAct,1949whoholdsavalidcertifi cateofpracticeundersub-section(1)ofsecti on6ofthatAct,butdoesnotinclude[exceptfor thepurposesofrepresentingtheassesseeunde rsub-section(1)] Whereanyofthemattersstatedinthereportisa nsweredinthenegative,orwithaqualificatio n,thereportshallstatethereasonsforthesam e. , 10 BForm 10B Thisreporthastobegivenbyanaccountantwho IsaCharteredAccountantdefinedinclause(b) ofsub-section(1)ofsection2oftheChartered AccountantsAct,1949whoholdsavalidcertifi cateofpracticeundersub-section(1)ofsecti on6ofthatAct,butdoesnotinclude[exceptfor thepurposesofrepresentingtheassesseeunde rsub-section(1)] Whereanyofthemattersstatedinthereportisa nsweredinthenegative,orwithaqualificatio n,thereportshallstatethereasonsforthesam e.

9 , Theauditormayverifythefollowingbasicdocu mentsinordertoenablehimtogivethevariousp articularsrequiredintheannexure.(a)incom eandexpenditureaccount,(b)balancesheet,( c)receiptsandpaymentsaccount,(d)minutesb ookofthegoverningbody,(e)pastincome-taxr ecords,(f)income-taxstatementcomputedfor thecurrentyear,(g)profitandlossaccountfo rthebusinessandincometaxcomputationstate mentforthatbusiness,(h)copyofthetrustdee d/bye-laws/memorandumofarticles, 10 BForm 10B Theauditormayverifythefollowingbasicdocu mentsinordertoenablehimtogivethevariousp articularsrequiredintheannexure.(a)incom eandexpenditureaccount,(b)balancesheet,( c)receiptsandpaymentsaccount,(d)minutesb ookofthegoverningbody,(e)pastincome-taxr ecords,(f)income-taxstatementcomputedfor thecurrentyear,(g)profitandlossaccountfo rthebusinessandincometaxcomputationstate mentforthatbusiness,(h)copyofthetrustdee d/bye-laws/memorandumofarticles, 10B (Statement of Particulars) (2)ofexplanation11(1)hasbeenexercised?

10 IfYes, ,totheextenditdoesnotexceed15% (1)(c) (otherthanreferredin3)forsection11(2) (2)(b). (1B)?Ifso, (2)ofexplanation11(1)hasbeenexercised?If Yes, ,totheextenditdoesnotexceed15% (1)(c) (otherthanreferredin3)forsection11(2) (2)(b). (1B)?Ifso,thedetailsthereofFORM 10B (Statement of Particulars) ,duringthepreviousyear,anypartofincomeac cumulatedorsetapartforspecifiedpurposesu ndersection11(2)inanyearlieryear (a)hasbeenappliedforpurposesotherthancha ritableorreligiouspurposesorhasceasedtob eaccumulatedorsetapartforapplicationther eto,(b)hasceasedtoremaininvestedinanysec urityreferredtoinsection11(2)(b)(i)ordep ositedinanyaccountreferredtoinsection11( 2)(b)(ii)orsection11(2)(b)(iii),(c)hasno tbeenutilizedforpurposesforwhichitwasacc umulatedorsetapartduringtheperiodforwhic hitwastobeaccumulatedorsetapart,orinthey earimmediatelyfollowingtheexpirythereof? Ifso, ,duringthepreviousyear,anypartofincomeac cumulatedorsetapartforspecifiedpurposesu ndersection11(2)inanyearlieryear (a)hasbeenappliedforpurposesotherthancha ritableorreligiouspurposesorhasceasedtob eaccumulatedorsetapartforapplicationther eto,(b)hasceasedtoremaininvestedinanysec urityreferredtoinsection11(2)(b)(i)ordep ositedinanyaccountreferredtoinsection11( 2)(b)(ii)orsection11(2)(b)(iii),(c)hasno tbeenutilizedforpurposesforwhichitwasacc umulatedorsetapartduringtheperiodforwhic hitwastobeaccumulatedorsetapart,orinthey earimmediatelyfollowingtheexpirythereof?