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Not for profit organizations Audit
Not‐for‐profit organizations (NFPOs) may be required to have an audit performed under local law, may choose to have an audit performed on a voluntary basis in order to add credibility to their financial statements. Here on MCQs.club we have prepared easy Multiple-Choice Questions (MCQs) on Not‐for‐profit organizations that cover MCQs on how to audit NPO, not-for-profit organization audit & accounting guide, how to audit NPO with examples. These MCQs are helpful for Competitive exams, Professional accountancy exams and Business management exams.
- A charity organisation is an example of not-for-profit organisations (NFPOs).
- True
- False
- NFPOs may be required to have an audit performed ______________ in order to add credibility to their financial statements.
- under local law
- may choose to have an audit performed on a voluntary basis
- Both A or B
- None
- If the NFPO requests an audit to be performed on a voluntary basis, or requires a review to be carried out, the scope of the work and the nature of any report issued will be agreed in advance between the auditor and the NFPO.
- True
- False
- Key areas of internal control in an NFPO might include:
- segregation of duties (although this may be difficult in a small NFPO with only a few employees)
- authorisation of spending, cash controls, controls over income (donations, cash collections, membership fees, grants)
- the use of funds only for authorised purposes.
- All of the above
- The key factors to consider while auditing not-for-profit organisations (NFPOs) include:
- There may be a limitation on the scope of the audit if obtaining audit evidence is a problem.
- There may be a lack of predictable income or identifiable relationship between expenditure and income which could make analytical review less appropriate.
- Restricted funds may exist where the organisation is only allowed to use certain funds for specific purposes.
- All of the above
- Important features of a not-for-profit (NFP) include:
- Profit maximisation is not their main objective. Objectives will be either social or philanthropic.
- There are no shareholders.
- They will not distribute dividends.
- All of the above
- NFP organisations such as charities which are not established as charitable companies will need to prepare:
- A statement of financial activities – similar to a statement of profit or loss.
- A balance sheet – showing assets and liabilities
- A cash flow statement.
- Notes to the financial statements.
- All of the above
- (I) and (II)only
- (I) (II) and (IV) only
- None
- Some NFP entities, particularly small charities, may have weaker control systems due to:
- a lack of segregation of duties, as the organisation may not employ many staff in order to keep overheads down.
- the use of volunteers, who are likely to be unqualified and have little awareness of the importance of controls.
- the use of less formalised systems and controls.
- All of the above
- Which of the following is correct?
- With many charities, much of the income received is by way of donation. Some of these transactions will not be accompanied by invoices, orders or despatch notes.
- Assessing the going concern status of a NFP entity may also be more difficult, particularly for charities who are reliant on voluntary donations.
- NFPs may have complex internal and external regulations governing their activities, reporting requirements and taxation system.
- All of the above
- Quite often, the scope of the external audit of a NFP is much larger than that for a company. Auditors of NFPs may be required to perform additional assignments such as:
- Value for money audits – assessing whether the organisation is getting the most out of the money spent.
- Regularity audits – ensuring the expenditure of the organisation is in accordance with the regulations/legislation governing it.
- Performance indicators – auditing the targets of the organisation that have to be reported to stakeholders
- All of the above
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