ICAI Notes: Special Features of Audit of Different Type of Entities | Auditing and Ethics for CA Intermediate PDF Download

 Page 1


    
 
CHAPTER 
9 
 
LEARNING OUTCOMES 
 SPECIAL FEATURES 
OF AUDIT OF 
DIFFERENT TYPES OF 
ENTITIES 
 
After studying this chapter, you would be able to: 
? Understand about Government audit, duties of the Comptroller and 
Auditor General of India 
? Understand the procedures to be adopted for auditing of Not-for-profit 
Organizations (NGOs), Charitable Institutions. 
? Gain knowledge of auditing procedure of sole trader, firm, educational 
institutions, hospitals, clubs, cinema, hotels, etc. 
? Learn the audit procedure of hire purchase and leasing company 
accounts. 
? Identify the audit procedures of Government, Local Bodies, Cooperative 
Societies, LLPs, Trusts & Societies. 
? Understand practicality of above concepts using examples and case 
studies.  
© The Institute of Chartered Accountants of India
Page 2


    
 
CHAPTER 
9 
 
LEARNING OUTCOMES 
 SPECIAL FEATURES 
OF AUDIT OF 
DIFFERENT TYPES OF 
ENTITIES 
 
After studying this chapter, you would be able to: 
? Understand about Government audit, duties of the Comptroller and 
Auditor General of India 
? Understand the procedures to be adopted for auditing of Not-for-profit 
Organizations (NGOs), Charitable Institutions. 
? Gain knowledge of auditing procedure of sole trader, firm, educational 
institutions, hospitals, clubs, cinema, hotels, etc. 
? Learn the audit procedure of hire purchase and leasing company 
accounts. 
? Identify the audit procedures of Government, Local Bodies, Cooperative 
Societies, LLPs, Trusts & Societies. 
? Understand practicality of above concepts using examples and case 
studies.  
© The Institute of Chartered Accountants of India
 
 
AUDITING AND ETHICS  
 
9.2 
 
 
 
Special Features 
of Audit of 
Different types 
of Entities
Government 
Audit
NGOs
Local 
Bodies
Sole 
Trader
Firm
LLP
Hotel
Club
Cinema 
Hall
Educational 
Institutions
Hospital
Charitable 
Institutions
Hire Purchase 
& Leasing 
Companies
Co-operative 
Society
Trusts & 
Societies
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
Page 3


    
 
CHAPTER 
9 
 
LEARNING OUTCOMES 
 SPECIAL FEATURES 
OF AUDIT OF 
DIFFERENT TYPES OF 
ENTITIES 
 
After studying this chapter, you would be able to: 
? Understand about Government audit, duties of the Comptroller and 
Auditor General of India 
? Understand the procedures to be adopted for auditing of Not-for-profit 
Organizations (NGOs), Charitable Institutions. 
? Gain knowledge of auditing procedure of sole trader, firm, educational 
institutions, hospitals, clubs, cinema, hotels, etc. 
? Learn the audit procedure of hire purchase and leasing company 
accounts. 
? Identify the audit procedures of Government, Local Bodies, Cooperative 
Societies, LLPs, Trusts & Societies. 
? Understand practicality of above concepts using examples and case 
studies.  
© The Institute of Chartered Accountants of India
 
 
AUDITING AND ETHICS  
 
9.2 
 
 
 
Special Features 
of Audit of 
Different types 
of Entities
Government 
Audit
NGOs
Local 
Bodies
Sole 
Trader
Firm
LLP
Hotel
Club
Cinema 
Hall
Educational 
Institutions
Hospital
Charitable 
Institutions
Hire Purchase 
& Leasing 
Companies
Co-operative 
Society
Trusts & 
Societies
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
SPECIAL FEATURES OF AUDIT OF DIFFERENT
                                                                           TYPES OF ENTITIES 
 
 
9.3 
 
Audit of Different Entities  
(major points that must be kept in mind while performing the 
audit of Educational Institution, Charitable Institutions, Cinema, 
Hospital etc., are 
Constitution of the 
organisation 
Examine the constitution of the organisation 
Examine the bye laws or rules and regulations or trust 
deed 
Examine the powers of the members of the 
management and other officers 
Examine the minute books of managing committees 
and of members general meeting as the case may be 
Evaluate the internal Control System in the organisation 
Examine the accounting policies followed and the 
accounting records maintained
Check the various expenditures of the organization like 
Salary, Rent, General Expenses etc. Verification of assets 
and liabilities 
Check the various receipts of the organisation in the 
form of fees, rent, income on investment, donations and 
grants 
© The Institute of Chartered Accountants of India
Page 4


    
 
CHAPTER 
9 
 
LEARNING OUTCOMES 
 SPECIAL FEATURES 
OF AUDIT OF 
DIFFERENT TYPES OF 
ENTITIES 
 
After studying this chapter, you would be able to: 
? Understand about Government audit, duties of the Comptroller and 
Auditor General of India 
? Understand the procedures to be adopted for auditing of Not-for-profit 
Organizations (NGOs), Charitable Institutions. 
? Gain knowledge of auditing procedure of sole trader, firm, educational 
institutions, hospitals, clubs, cinema, hotels, etc. 
? Learn the audit procedure of hire purchase and leasing company 
accounts. 
? Identify the audit procedures of Government, Local Bodies, Cooperative 
Societies, LLPs, Trusts & Societies. 
? Understand practicality of above concepts using examples and case 
studies.  
© The Institute of Chartered Accountants of India
 
 
AUDITING AND ETHICS  
 
9.2 
 
 
 
Special Features 
of Audit of 
Different types 
of Entities
Government 
Audit
NGOs
Local 
Bodies
Sole 
Trader
Firm
LLP
Hotel
Club
Cinema 
Hall
Educational 
Institutions
Hospital
Charitable 
Institutions
Hire Purchase 
& Leasing 
Companies
Co-operative 
Society
Trusts & 
Societies
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
SPECIAL FEATURES OF AUDIT OF DIFFERENT
                                                                           TYPES OF ENTITIES 
 
 
9.3 
 
Audit of Different Entities  
(major points that must be kept in mind while performing the 
audit of Educational Institution, Charitable Institutions, Cinema, 
Hospital etc., are 
Constitution of the 
organisation 
Examine the constitution of the organisation 
Examine the bye laws or rules and regulations or trust 
deed 
Examine the powers of the members of the 
management and other officers 
Examine the minute books of managing committees 
and of members general meeting as the case may be 
Evaluate the internal Control System in the organisation 
Examine the accounting policies followed and the 
accounting records maintained
Check the various expenditures of the organization like 
Salary, Rent, General Expenses etc. Verification of assets 
and liabilities 
Check the various receipts of the organisation in the 
form of fees, rent, income on investment, donations and 
grants 
© The Institute of Chartered Accountants of India
 
 
AUDITING AND ETHICS  
 
9.4 
Scrambling for his television remote one day, Sameer accidentally pushed button of 
“Sansad TV”. Although not fond of keenly watching Parliamentary debates, his 
attention was drawn to pandemonium being caused in one Houses of Parliament 
over a report of the Comptroller and Auditor General of India (CAG).  Anxious to 
know about importance of reports of CAG, he wanted to first know about this 
constitutional office.  What is nature of duties of Comptroller and Auditor General 
of India as envisaged in Constitution of India?  What makes position of CAG 
unique? 
Astonished to learn that Comptroller and Auditor General is known as “Supreme 
Audit Institution of India”, he wanted to know more about scope of duties 
performed by such an important institution. Not only audits of receipts and 
expenditure of Union of India and States are performed by CAG of India, this 
institution is also responsible for audit of receipts and expenditure of bodies 
mainly financed by Union or State Revenues.  
Besides above, it is responsible for ensuring that public funds are being collected 
and used effectively and efficiently. Does CAG have a role to play in audits of 
government companies? What are law provisions in this regard? He was also 
thinking that Constitution must have included provisions to ensure independence 
of such an institution. What are such provisions? 
Knowing importance of local bodies governing cities, Sameer also wanted to 
know how control over expenditure of local bodies is exercised. Who exercises 
such control and what are main objectives of such an audit? How financial 
administration of such urban local bodies is run?  
Are there some other sets of entities which merit special audit considerations by 
virtue of their nature or structure? For example, an NGO works in a totally 
different environment. It may work in social or environmental areas. What critical 
points are to be kept in mind by auditor of an NGO? Similarly, clubs, hotels and 
hospitals may involve audit considerations peculiar to their nature of working. 
Sameer had also noticed sign boards of some organizations with LLP written at 
the end. What does it denote? How does it differ from a partnership firm? What 
are regulatory requirements in respect of LLP? As an auditor, what special 
considerations apply in case of audit of LLP? 
© The Institute of Chartered Accountants of India
Page 5


    
 
CHAPTER 
9 
 
LEARNING OUTCOMES 
 SPECIAL FEATURES 
OF AUDIT OF 
DIFFERENT TYPES OF 
ENTITIES 
 
After studying this chapter, you would be able to: 
? Understand about Government audit, duties of the Comptroller and 
Auditor General of India 
? Understand the procedures to be adopted for auditing of Not-for-profit 
Organizations (NGOs), Charitable Institutions. 
? Gain knowledge of auditing procedure of sole trader, firm, educational 
institutions, hospitals, clubs, cinema, hotels, etc. 
? Learn the audit procedure of hire purchase and leasing company 
accounts. 
? Identify the audit procedures of Government, Local Bodies, Cooperative 
Societies, LLPs, Trusts & Societies. 
? Understand practicality of above concepts using examples and case 
studies.  
© The Institute of Chartered Accountants of India
 
 
AUDITING AND ETHICS  
 
9.2 
 
 
 
Special Features 
of Audit of 
Different types 
of Entities
Government 
Audit
NGOs
Local 
Bodies
Sole 
Trader
Firm
LLP
Hotel
Club
Cinema 
Hall
Educational 
Institutions
Hospital
Charitable 
Institutions
Hire Purchase 
& Leasing 
Companies
Co-operative 
Society
Trusts & 
Societies
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
SPECIAL FEATURES OF AUDIT OF DIFFERENT
                                                                           TYPES OF ENTITIES 
 
 
9.3 
 
Audit of Different Entities  
(major points that must be kept in mind while performing the 
audit of Educational Institution, Charitable Institutions, Cinema, 
Hospital etc., are 
Constitution of the 
organisation 
Examine the constitution of the organisation 
Examine the bye laws or rules and regulations or trust 
deed 
Examine the powers of the members of the 
management and other officers 
Examine the minute books of managing committees 
and of members general meeting as the case may be 
Evaluate the internal Control System in the organisation 
Examine the accounting policies followed and the 
accounting records maintained
Check the various expenditures of the organization like 
Salary, Rent, General Expenses etc. Verification of assets 
and liabilities 
Check the various receipts of the organisation in the 
form of fees, rent, income on investment, donations and 
grants 
© The Institute of Chartered Accountants of India
 
 
AUDITING AND ETHICS  
 
9.4 
Scrambling for his television remote one day, Sameer accidentally pushed button of 
“Sansad TV”. Although not fond of keenly watching Parliamentary debates, his 
attention was drawn to pandemonium being caused in one Houses of Parliament 
over a report of the Comptroller and Auditor General of India (CAG).  Anxious to 
know about importance of reports of CAG, he wanted to first know about this 
constitutional office.  What is nature of duties of Comptroller and Auditor General 
of India as envisaged in Constitution of India?  What makes position of CAG 
unique? 
Astonished to learn that Comptroller and Auditor General is known as “Supreme 
Audit Institution of India”, he wanted to know more about scope of duties 
performed by such an important institution. Not only audits of receipts and 
expenditure of Union of India and States are performed by CAG of India, this 
institution is also responsible for audit of receipts and expenditure of bodies 
mainly financed by Union or State Revenues.  
Besides above, it is responsible for ensuring that public funds are being collected 
and used effectively and efficiently. Does CAG have a role to play in audits of 
government companies? What are law provisions in this regard? He was also 
thinking that Constitution must have included provisions to ensure independence 
of such an institution. What are such provisions? 
Knowing importance of local bodies governing cities, Sameer also wanted to 
know how control over expenditure of local bodies is exercised. Who exercises 
such control and what are main objectives of such an audit? How financial 
administration of such urban local bodies is run?  
Are there some other sets of entities which merit special audit considerations by 
virtue of their nature or structure? For example, an NGO works in a totally 
different environment. It may work in social or environmental areas. What critical 
points are to be kept in mind by auditor of an NGO? Similarly, clubs, hotels and 
hospitals may involve audit considerations peculiar to their nature of working. 
Sameer had also noticed sign boards of some organizations with LLP written at 
the end. What does it denote? How does it differ from a partnership firm? What 
are regulatory requirements in respect of LLP? As an auditor, what special 
considerations apply in case of audit of LLP? 
© The Institute of Chartered Accountants of India
SPECIAL FEATURES OF AUDIT OF DIFFERENT
                                                                           TYPES OF ENTITIES 
 
 
9.5 
1. GOVERNMENT AUDIT 
1.1 Background 
Government Audit is as old as organised governments and has fairly long pedigree 
even in developing countries. The concept, content and scope of government audit 
have developed in tune with the political, social and economic development of the 
countries. It has also responded to the needs of the administration. It aims to 
ensure accountability of the executive in respect of public revenue and expenditure. 
Primarily, the Parliament and in case of States, the State legislatures control all 
government expenditure through insistence upon demand for grants. The main 
idea underlying this control is that no expenditure can be incurred unless it has 
been voted upon by the Parliament or State Legislatures and funds for every 
such expenditure must be provided from out of the Consolidated Fund of India 
or of the State.  
(As per Article 266, the Consolidated Fund of India consists of all the revenue 
received from direct and indirect taxes, all the loans taken by the Govt. of
India and all the amount of repayment of loans received by the Govt. of India)
After the expenditure has been incurred and the accounts are closed, the 
Appropriation Accounts are prepared which are scrutinised by the Public Accounts 
Committee (The Public Accounts Committee (PAC) is a committee of selected 
members of parliament, constituted by the Parliament of India, for the purpose of 
auditing the revenue and the expenditure of the Government of India). Thus, 
Parliamentary or Legislative control is exercised before spending and after the 
expenditure is actually incurred. 
Since independence there has been a tremendous spurt in governmental activities 
with the attendant increase in expenditure, revenue and capital, and in receipts and 
borrowings to match the expenditure. Government has entered the business ?eld 
and government in business is not the same as government administering law and 
order and attending to regulatory functions. Independent India witnessed a steady 
growth of state commercial enterprise. The change in the character of government 
and the complex nature of its activities, including regulatory functions in an 
international environment called for a change in the nature and scope of audit. 
Audit has evolved from accountancy and regularity check to evaluation of the end 
results of the operations of government. 
© The Institute of Chartered Accountants of India