Audit procedure is mainly a step by step approach. As this is a case study on a selected
NGOs (according to ACNABIN no one can disclose the name of the Company name)
particular project, it will cover a little area of NGO auditing. But the snapshot can be
obtained from this study. The selected NGO has wide range of operations. As an audit
firm ACNABIN does complete set of procedures to be followed at the time of audit
performed. From engagement to report submission the process is followed with
reasonable and professional care and maintaining all rules and regulation and
In this report the main focus was on the implementation procedure of audit and finding
out the features that is taken to audit the NGOs. NGO auditing is not like general
company auditing. Huge amount of foreign donations are involved here. For that reason
the verification of the authenticity of foreign donation is mandatory in case of NGO
auditing. The 35 conditions imposed by NGOAB are considered a guideline in this
The auditing is done to find out irregularities regarding stock management, fixed asset
management, proper implication of Bangladesh Accounting standards, VAT Act, Income
tax ordinance, labor law and other included in internal control system.
The recommendation provided by the auditor is obviously beneficial for the NGOs as
those can improve the quality of the respective NGOs performance. In the audit a follow
up of the previous year‟s audit is verified whether that is solved or not. If not,
recommendation on taking proper action is communicated to the management.
But the effort will best be obtained when the transparency of financial reporting will be
ensured through a system where the audit procedure will be more flexible and easy to
understand. Because it will ensure greater accessibility of people to disclose and
evaluate as well as understand and implement the auditing and accounting knowledge.
The auditing profession has contributed and will be contributing a greater extent in
ensuring transparency and efficiency of internal control system of various sector of
Bangladesh. The achievement of the auditors will be then when the maximum people of
the country will be aware about their rights and then proper transparency will come
conquering all obstacles.
CHAPTER – ONE
Bangladesh has a history of rich sociological bondage. This social bondage is a basic
cultural attributes of Bangladeshi society. With the span of time the social bondage and
other social developmental and other activities is now loosing the appeal and effectively.
But the state and governmental system is not as adequate to fulfill the requirement of
the people of our country. The new capitalist culture is now expanding the income gap
between the rich and poor. Undesirable Social and Cultural hazards are now growing in
numbers. Government is elected by the people but due to some sort of systematic
hazards and cultural deterioration all governmental activities do not fully benefit the
people of the country. NGO‟s are welcomed here to replace this type of responsibilities
which would have to be done by the Government. Non Governmental Organizations
(NGO) is not financed by the Government. NGO‟s mainly receive fund from foreign
countries and they expend this on different projects aiming to maintain social awareness
covering the site of education, sanitation and health. To ensure proper transparency
and accountability generally auditing is done on those NGOs. Because there are huge
possibilities of misusing the fund received from the foreign donor. Potential threats and
prospects of NGO auditing is now a very important aspect to raise awareness of the
stakeholders of the NGO‟s and making an evaluation to improve the quality of auditing.
This NGO receive a huge amount of Donations which are transmitted to Sub-recipients
NGOs and with prescribed instruction and Budgets. But due to some difficulties and
Problems the proper clarification of the audit made cannot be achieved. Due to the
weakness in internal control system and other associated external problems the proper
utilization of fund money sometimes fall apart. To minimize the risk of that misuse the
roll of auditors is important. What should be those roles in assessing the risk, minimizing
those risks, strengthening the internal control system and making adequate contribution
to the development of the country is an important aspect of this internship report
proposal. ACNABIN as a leading chartered accountancy firm has a wide practical
exposure on the NGO auditing. In this study those information are incorporated which
are best conform the procedure of Auditing of a NGOs by a CA firm.
1.2 Objectives of the study:
Generally in our academic life we get theoretical knowledge about different aspects. But
now a day, in the job market there is no substitute of work experience. Getting
meaningful work experience in one major field of study must to be given a high priority.
After getting theoretical knowledge from university, it is all about the application of that
knowledge in real world situations. It has immense importance to establish relationship
between theory and practices in real world situation. Practically The Procedure of NGO
auditing is deeply characterized by the current accounting and auditing standards, Role
of regulatory authorities, Activities of Different Financial and Non-Financial Institutions
from home and abroad and Government itself. The objectives of this report are:
Gaining practical knowledge and experience on how a chartered accountancy firm
(ACNABIN) performs an audit and a how audit work.
Special Procedures taken by the Firm (ACNABIN) to audit NGOs and their sub
Understanding the field level problems related to the implementation of the prescribed
procedure from the part of both Auditor and client?
Getting a exposure of the Problems in internal control system of different Organizations
and plausible recommendations.
Understanding how NGO‟s are being benefited by the supervision of the audit firm with
adequate exposure on future prospects.
1.3 Methodology of collecting Information:
The hypothesis which I have developed will be through empirical testing research based
on the collection of quantitative data taken from financial statements, balance sheets of
Different Sub-Recipients and the selected NGO itself. I will mainly focus on the
qualitative aspect of my audit. Because for most of the cases, auditing is not only to
focus on quantitative aspects of information, it is focusing on qualitative aspects of
information also. And there is a high confidentiality regarding the quantitative
In order to prepare the assigned project paper I have collected necessary information
from two types of source as follows:
1) Primary sources information.
2) Secondary sources information.
Primary sources information
1. I have collected primary information by working with NGO audit teams.
2. Discussing with engagement partner, audit manager, audit stuff and articled students.
Secondary sources information
1. I have also collected secondary information like annual audit report, management
audit report, accounting system, Policies, Circulation & audit working papers.
2. The information was obtained from various corresponding files of the firm.
1.4 Limitation of the study:
During my study, I have confronted some challenges. I have tried my best to overcome
those challenges. Even then, I have some limitations. The study is conducted with an
objective to make a thorough study of external audit procedure. The challenges I
mentioned before can be termed as the limitation of my study. Those limitations are as
a) As the internship was the first practical experience, it was not possible for me to know
all and everything of audit procedure.
b) Some qualitative information is incorporated and for that reason the name of the
NGO cannot be mentioned.
NGO means Non Government Organization. NGOs are not self-serving in aims and
related values. Their aim is to act in the public arena at large, on concerns and issues
related to the well being of people, specific groups of people or society as a whole. They
are not pursuing the commercial or professional interests of their members.
Non-governmental development organizations are potentially critical catalysts for
unlocking the energies and resources of the poor and voiceless, and for building
pluralistic and democratic societies. To be effective in this role, they must formulate and
implement programs that strategically promote and support long-term changes that
have large-scale development multiplier effects. All too often the early successes of
NGOs are difficult to sustain let alone replicate on a larger scale, because of problems
in organization and management. (Brown, David. 1988. “Organizational Barriers to NGO
Strategic Action.” Institute for Development Research, Boston, 10 pp.)
“Auditing is the accumulation and evaluation of evidence about information to determine
and report on the degree of correspondence between the information and established
criteria. Auditing should be done by a competent, independent person.”
In other words Auditing is subject to expectations and demands which are, justifiably or
otherwise, often disappointed (Kealey, Lee & Stein 2007).
According to the Companies Act 1994, accounts of companies registered under this act
must be audited by chartered accountants within the regulations of the Bangladesh
Chartered Accountants Order 1973. Similarly, all books of accounts maintained by a
non-government organization receiving foreign donations shall be audited by a
chartered accountant as defined in the same Order
NGO Auditing is being characterized as a tool to find out the possible threats and risk
associated with the operation of the NGO. To ensure Accountability in NGO sector
previously studies are done. With regard to the evolution of NGO accountability
practices and their implications on NGOs, Songco (2007) finds that the effort of creating
a more proactive environment for NGO accountability is to dissect the different levels at
which accountability needs to be promoted, the methods that can be used by NGOs
operating in these different levels and incentives and disincentives that can be instituted
in this regard. Lloyd R. and de las Casas, L. (2005) investigate NGO self-regulation and
its impact on enforcing and balancing accountability.
Srinivas(2005) claims that NGO accountability covers issues such as organizational
management, project implementation, financial management and information
disclosure. It is related to issues such as answerability, responsibility, liability,
dependability, conscientiousness, reliability, trustworthiness, legitimacy, and
transparency. There has been a rising visibility and stakes of NGOs‟ work. A crisis of
legitimacy in many sectors, especially business and government has amplified the need
for NGOs as a „counterbalance‟.
Srinivas(2005) concludes that cases of NGO misconduct in advocacy, fund use,
management, and governance, have come to light, questioning their very legitimacy and
congruency with social values and expectations. Some NGO have also ignored the fact
that they are answerable to key stakeholders and the constituency that they work with,
for promises of performance. Bendell (2006) concluded based on the submissions of
eleven world leading NGOs that the core values and operating principles for
international NGOs, should include good governance and management; fundraising and
multi-stakeholder engagement. It also makes specific reference to respect for universal
principles (such as the Universal Declaration of Human Rights), independence,
responsible advocacy, effective programs, non-discrimination, transparency and ethical
With regard to the evolution of NGO accountability practices and their implications on
NGOs, Songco (2007) finds that the effort of creating a more proactive environment for
NGO accountability is to dissect the different levels at which accountability needs to be
promoted, the methods that can be used by NGOs operating in these different levels
and incentives and disincentives that can be instituted in this regard.
Lloyd R. and de las Casas, L. (2005) investigate NGO self-regulation and its impact on
enforcing and balancing accountability. They argue that increasing visibility and
increasing criticism, among other factors, have led to growing pressure on NGOs to be
more accountable, both from within and outside of the sector.
PROFILE OF ACNABIN
Founded in 1985, ACNABIN started with seven partners. The name “ACNABIN” comes
from the acronyms of the founder partners:
A = ABM Azizuddin
C = Anwaruddin Chowdhury
N = Abu Syed Mohammad Nayeem
A = Mohammad Akhtaruzzaman
B = ATMA Bari
I = Iftekhar Hossain
N = Mohammad Nurun Nabi.
At present the partnership comprises four founder partners and three new partners.
3.1 The Profile Of Acnabin At A Glance:
NAME OF THE AUDIT FIRM : ACNABIN
DATE OF ESTABLISHMENT : 15 February 1985
TELEPHONE, FAX & E-MAIL : BDBL Bhaban (13th Floor)
12 Kawran Bazar Commercial Area
Dhaka 1215, Bangladesh
Phones: (880-2) 8144347-52
Fax #: (880 2) 8144353-54
Web site: www.acnabin-bd.com
BRANCH OFFICE : House # 734, Road # 26, CDA R/A, Chittagong.
NAME OF PARTNERS,
QUALIFICATION : ABM Azizuddin
B.Com. (Hons). M. Com., FCA
(ICAB Regn. # 46)
: Iftekhar Hossain
B. Com., FCA
(ICAB Regn. # 150)
: Abu Sayed Mohammed Nayeem
B. Com. (Hons.), M. Com., M. Sc., (UK), FCA, FCCA
(ICAB Regn. # 353)
: Mohammad Nurun Nabi
(ICAB Regn. # 370)
: Md. Rokonuzzaman
M. Com., FCA
(ICAB Regn. # 739)
: M. Moniruzzaman
B. Com. (Hons.), M. Com., FCA
(ICAB Regn. # 787)
: Md. Mominul Karim
B. Com. (Hons.), M. Com., FCA
(ICAB Regn. # 934)
3.2 Manpower Strength
Sl. # Personnel
- Senior Director-Taxation
- Director-Audit & Consultancy (Chartered Accountant)
- Manager-Audit & Consultancy (Chartered Accountant)
- Manager-Taxation & Corporate Affairs (Chartered Accountant)
Sl. # Personnel
- Deputy Manager-Taxation & Corporate Affairs
- Deputy Manager-Audit & Consultancy
- Senior Assistant Manager-Audit & Consultancy
- Senior Assistant Manager-Taxation & Corporate Affairs
- Assistant Manager-Audit & Consultancy
- Assistant Manager-Taxation & Corporate Affairs
- Executive and Junior Executive-Audit, Consultancy & Taxation
*** copied organogram
3.3 Role of the Personnel:
The role of a partner is to get new clients and also sometimes the clients approach the
partners themselves. The partners also make sure the existing clients are provided with
the best possible service. Partners guide their employees to prepare a proposal which is
to be submitted to the client depending on what kind of service the client requ
ii. Audit manager:
An audit manager is a Chartered Accountant who assists the partners in various ways.
He/ She review reports before signing by the engagement partner.
A supervisor may or may not be a Chartered Accountant. He has to complete the
course and having some years experience in the field of accountancy therefore he
designated as the Audit Supervisor of the firm. Audit manager briefs the audit
supervisor on where and when an audit has to be performed and how the job is to be
An audit senior has some years of experience in the accountancy field therefore he has
been designated as the audit Senior of the firm. Audit senior is briefed by the audit
manager and supervisor about where and when an audit has to be performed and how
the job is to be carried out.
A semi-senior student has to complete at least one year of article ship in the firm. Every
time he is liable to his assigned seniors.
Junior Students are the fresher who have just joined as an articled to the firm.
3.4 Non Professional Staff:
The numbers of non professional staffs involved with the firm are as follows:
General Manager (GM)
Photocopy Machine Operator
3.5 Services Provided By the Firm
ACNABIN provides a wide range of high quality services of diversified nature to its
clients in the private and public sectors in Bangladesh. It also renders services to
international development agencies and expatriate consultants those are associated
with various projects in Bangladesh.
(a)Services offered cover the following areas
Taxation – individuals, companies, banks, branch offices, liaison offices
Accountancy and management training
Company formation and secretarial work
Investigation of frauds and irregularities
Setting up branch office and setting up liaison office
Companies‟ registration with Board of Investment, Ministry of Industries etc.
Work permits, visa, security clearance of expatriates
Bank accounts opening for foreign clients
Obtaining permission from the central bank regarding inward and outward remittance
Obtaining trade license, factory license, Import Registration Certificate, Export
Registration Certificate, Bonded warehouse facility, VAT registration, Membership of
Trade Association/chambers etc.
Providing services regarding setting up of office, drafting rent/lease agreement,
recruitments of staff etc.
Preparation of manual and policy guidelines in respect of finance, accounts, internal
control, inventory, procurement, operation, administration, human resources etc.
Services relating to fixed assets management, inventory management etc.
Services with regard to share issue, right issue, initial public offering, prospectus
Outsourcing of accounting services, payroll, internal audit etc.
Helping clients in adopting international and local accounting standards
Tax planning and tax management of expatriates
Business plan developments
Feasibility study of projects
Due Diligence Review
Data processing with computers
Privatization consultancy (includes pre-privatization review, restructuring, valuation in
particular and privatization assistance in general)
Company acquisition, merger, spin off, amalgamation etc.
Liquidation and winding up of companies
Human Resource Development Issues
Organizational consulting services.
Designing computerized systems for MIS and accounting and its implementation
Other services as per needs of the clients.
(b) Following are a few of the major category of clients receiving ACNABIN’s
Oil and gas
Power and power
Courier and cargo services
3.6 Association and Membership
(a) Affiliation with International Auditing/Accounting Firm
ACNABIN is an independent member of Baker Tilly International, 8th largest network in
the world with 145 independent member firms in 110 countries.
(b) Relationship with International Accounting Firm
(i) Association with ASNAF-ASEAN Accounting Firms, Singapore since 18 February
(ii)Services already provided to the clients include:
Due diligence review
Joint venture enquiries
Establishing business presence
(c) USAID, EC and CIDA Enlisted
In 1993 ACNABIN have been enlisted by the United States Office of Regional Inspector
General/Audit, Singapore to perform financial audits of USAID fund recipients in
Bangladesh. We have been also enlisted by the European Commission and Canadian
International Development Agency to conduct financial audit of the recipients of their
(d) Collaboration with other consulting firms
ACNABIN has been able to establish close working relationship with many national and
international consulting firms in Bangladesh through its efficient and dedicated services.
ACNABIN has thus enriched its professional base for serving the clients‟ interest in the
best possible manner.
(a) Metropolitan Chamber of Commerce and Industries
(b) The Dhaka Chamber of Commerce & Industries
(c) American Chamber of Commerce in Bangladesh.
Firm’s registration with relevant authorities
i. Partners of ACNABIN is registered with The Institute of Chartered Accountants of
Bangladesh (ICAB) for audit practice.
ii. ACNABIN is enlisted with the Non-Government Organization Affairs Bureau
Bangladesh (NGOAB), Enlistment # 21 with NGOAB.
iii. ACNABIN is registered with the Registrar of Joint Stock of Companies and Firms #
PF 27897/86 under Section 58 (1) of the Partnership Act, 1932 (IX of 1932) dated June
**** Information Gathered from ACNABIN Manual
AUDIT PROCEDURES FOR NGOs FOLLOWED BY ACNABIN
4.1 ENGAGEMENT PROCEDURES
Before discussing the Audit Procedures followed by ACNABIN, I try to focus on the
engagement procedures through which ACNABIN is engaged/ recruited by the NGO to
perform the audit. ACNABIN faces three kinds of situations in engagement process:
Engagement with new NGO.
Engagement with existing NGO.
Directly appointed by the NGO.
Before starting the audit work, some letters are exchanged between ACNABIN and
In case of engagement with new NGO:
4 (four) letters are exchanged between ACNABIN and NGO including acceptance letter
of appointment at the time of involving with the new NGO. Following stages are followed
by both ACNABIN and NGO:
Stage-1: NGO requires for technical and financial proposal from the ACNABIN
NGO generally gives circular with the newspaper or directly wants proposal for audit
from the audit firm. In case of direct offer they request to the audit firm to submit a
quotation for the cost of conducting audit of the NGO. They also mention the specific
date to confirm the decision taken by the audit firm and completion date for audits. The
NGO firm mentions here the key areas of the audit in the form of attachment. It assures
that if ACNABIN audits NGO‟s firm, they will supply the formal terms of reference/audit
mandates to govern the conduct of audit.
Stage-2: The technical and financial proposal is sent by ACNABIN to the NGO
After reviewing the NGO letter or paper‟s circular, audit firm drafts a proposal letter to
the NGO. The proposal letter contains technical and financial proposal for carrying out
the subject of audit. ACNABIN estimates its personnel costs after considering the
mandates to be utilized and using the minimum hourly rate of fees as prescribed by The
Instituted of Chartered Accountants of Bangladesh (ICAB). The firm also mentions that
as it is an estimate, the cost may vary with variation in number of mandates estimated
to be utilized for the job.
Stage-3: Acceptance by the NGO on the basis of proposal of ACNABIN – A letter
After receiving proposal letters from various audit firms, the NGO then selects the one
which is favorable to them, and it appoints the audit firm for audit purpose. From the
technical and financial proposal of the ACNABIN the NGO understands the nature of
the audit (such as independent, external) to assess the organization‟s internal control
system in administering the audited matter.
Stage-4: A letter is sent by ACNABIN to the NGO confirming to work with the NGO
– Confirmation Letter
After receiving the acceptance letter from the NGO, ACNABIN provides confirmation
letter describing the firm‟s willingness to work with the NGO.
In case of engagement with existing NGO
Three letters are exchanged between the ACNABIN and NGO:
1.Willingness letter for reappointment: In this letter ACNABIN wants to audit this year. It
can request to increase audit fee or change some other conditions.
2. NGO sends appointment letter.
3. ACNABIN accept this appointment.
In case of directly appointed by the NGO
If the NGO is interested to work with ACNABIN, then it directly sends an appointment
letter to the firm which includes all terms and conditions. If all terms and conditions are
favorable to the ACNABIN then it accepts the appointment and sends a letter to the
NGO as an auditor.
4.2 Audit Procedures Followed By ACNABIN
The primary goal of ACNABIN at the time of involving in any audit engagement is to
provide the opinion on Financial Statements in accordance with Bangladesh Standards
on Auditing (BSA) as well as International Standards on Auditing (ISA). ACNABIN also
seek to provide auditing and management consultancy services that are innovative,
efficient and most importantly responsive to the NGO‟s needs.
There are seven steps involved in the procedures that come one after another. Steps
are as follows:
Identity Overall Goals
Gather & Evaluate Initial Information
Assess General Risks
Assess Account-Specific Risks
Develop Effective and Efficient Audit Plan/Work Program
Conduct Audit Testing
Evaluate and Communicate Audit Results
4.2.1 Identify Firm’s Overall Goals
The goal of ACNABIN in conducting an audit is to express an opinion as to whether the
financial statements are prepared and presented fairly in accordance with Generally
Accepted Accounting Principles (GAAP). The Firm‟s policies on Generally Accepted
Accounting Principles are contained in Accounting Standards. The audit team considers
these standards in formulating an opinion. In forming an opinion, the audit team also
addresses responsibilities for:
Irregularities and other matters
Errors are unintentional misstatements or omissions of accounts of disclosures in
financial statements and may involve:
a)Mistakes in gathering or processing accounting data from which financial statements
b) incorrect accounting estimates arising from oversight or misinterpretation of facts
c) Mistakes in the application of accounting principles relating to amount, classification,
manner of presentation or disclosure.
The audit team is required to design the audit to provide reasonable assurance of
detection of material errors. The In-charge of an audit team is responsible to ensure that
the following matters are considered at the time of audit:
Existence or occurrence. Assets or liabilities of the entity exist at a given date and
recorded transactions have occurred during a given period.
Completeness. All transactions and accounts that should be presented in the financial
statements are so included.
Accuracy. Transactions and account balances are accurately recorded.
Valuation. Assets are stated at realizable value, and liabilities are stated at expected
Rights and obligation. Assets are the rights of the entity and liabilities are the
obligations of the entity at a given date.
Presentations and disclosure. Particular components of the financial statements are
properly classified, described and disclosed.
Irregularities and other matters
Irregularities are intentional misstatements or omission of amounts or disclosures in
financial statements, including fraudulent financial reporting and misappropriation of
assets. So there is always a risk that material irregularities may occur and not be
detected. This risk is increased by the possibility of management‟s override of internal
controls, collusion, forgery, or unrecorded transactions. Thus, while the audit team is
required to design the audit to provide reasonable assurance of detection of material
misstatements regarding irregularities, the following matters must be considered by the
In-charge of the audit team:
Detection of Material Irregularities
Detection of Material Misstatements resulting from illegal acts having a direct effect on
the Financial Statements.
Alertness for the Unsupported Transactions.
The audit team should design audit procedures that accomplish the overall goals
discussed above in the most efficient manner. Performing an efficient audit involves:
Performing front-end risk assessment and planning with adequate partner and manager
Designing the combination of audit procedures based on the risk assessment that will
efficiently reduce the risk of undetected material misstatements to an appropriately low
Assigning work to adequately trained and supervised persons with appropriate
experience and skill levels.
It has long been a tradition of ACNABIN to provide enhanced value to NGOs as an
integral part of audits. This strategy has allowed ACNABIN to differentiate our approach
from that of other firms. Delivering added value as an integral part of an audit and
effectively communicating the added value information to top management, directors
etc. is a key factor in building and maintaining a sound NGO relationship.
Most NGOs and most of related personnel would agree that the achievement of
ACNABIN differentiate from other firms and communicate the value of ACNABIN audit
by consistently stressing the following:
Sound working relationship
Understanding NGO‟s Activities and Funding.
4.2.2 Gather & Evaluate Initial Information
After involving with the NGO, ACNABIN first task is to collect and evaluate the relevant
and necessary information related to the NGO‟s operation for the purpose of:
Understanding the NGO‟s activities and operation
Considering the internal control structure
Identifying NGO expectation
Understand the operation of NGOs
Proper planning and designing of an audit is dependent on proper understanding of
NGO‟s operation. So after appointing by a NGO, we, the members of an audit team use
various sources to gain an understanding of NGO operation. Different sources which
provide us NGO‟s operating information are as follows:Annual report
Previous year‟s audit Work Papers
Discussion with NGO
NGO policies and circulation
Consider internal control structure
Every NGO has some kind of accounting system by which transactions are processed,
and records of those transactions maintained. That „system‟ should incorporate control
features and is normally referred to as the system of „Internal Control‟.
The existence of a reliable system of internal control can be a great help to the auditor,
because the objectives of the system should be:
Ensuring that the records are complete, accurate and properly authorized;
Detecting errors and fraud.
So, ACNABIN‟s first task in relation to the NGO‟s system of internal control is to
ascertain record and evaluate it. Then properly using the knowledge of the NGO‟s
system to plan audit tests to be performed is necessary.
We consider the activities of internal auditing and their effect, if any, on external audit
procedures. So we try to:
Understand and Assess Internal Auditing
As external auditors, we should obtain a sufficient understanding of internal audit
activities of the NGO that assists us in planning the audit and developing an effective
audit approach. During the course of planning the audit, we should perform a
preliminary assessment of the internal audit function when it appears that internal
auditing is relevant to the external audit of the financial statements in specific audit
Evaluate and Test the Work of Internal Auditing
To use specific work of internal auditing, we evaluate and test the work of internal
auditing to confirm its adequacy for the external auditing purposes.
The evaluation of specific work of internal auditing involves consideration of the
adequacy of the scope of work and related programs and whether the preliminary
assessment of the internal auditing remains appropriate. This evaluation may include
consideration of whether:
The work is performed by persons having adequate technical training and proficiency
as internal auditors and the work of assistants is properly supervised, reviewed and
Sufficient appropriate audit evidence is obtained to afford a reasonable basis for the
Conclusions reached are appropriate in the circumstances and any reports prepared
are consistent with the results of the work performed; and
Any exceptions or unusual matters disclosed by internal auditing are properly resolved.
The external auditor would record conclusions regarding the specific internal auditing
work that has been evaluated and tested.
Identify NGO expectation
As external auditor, we should identify the NGO‟s expectation and design and perform
the audit to meet the NGO expectation.
Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements. Materiality depends on
the size of the item or error judged in the particular circumstances of its omission or
In designing the audit plan, we establish an acceptable materiality level so as to detect
quantitatively material misstatements. However, both the amount (quantity) and nature
(quality) of misstatements need to be considered.
Materiality should be considered by the auditor when:
1. Determining the nature, timing and extent of audit procedures; and
2. Evaluating the effect of misstatements.
For General Companies a common rule of thumb for materiality is 5 to 10 percent of
pretax income. Items less than 5 percent are considered immaterial, whereas items that
are more than 10 percent are material. For items between 5 and 10 percent, judgment
is applied. But in case of NGO auditing materiality is considered when there is any type
of discrepancy regarding the amount in financial statements and policies to be applied.
4.2.3 Assess General Risks
During audit planning and risk assessment, we obtain initial audit evidence in order to:
1. Effectively assess the inherent risk of potential financial statement
2. Identify indicators of possible going concern problems, and
3. Identify account specific risk and design an overall audit approach to provide
reasonable assurance of detecting material misstatements.
The assessment of risk is accomplished using a “top-down” approach. The audit team
focuses initially on high level information. The nature and extent of documentation will
vary significantly based on an entity‟s size, complexity, ownership characteristics, and
level of risk.
Significant background information and NGO, economic and industry conditions that
provide an indication of the level of risk for an engagement are mentioned in items 1-15
1. Understanding NGO business: Can be obtained from various sources, e.g.
annual report, minutes, internal reports, previous year audit work papers,
discussion with NGO;
2. Management‟s style, outlook;
3. Significant Current Events and Reporting Issues;
4. Results of Financial Performance Review;
5. Management Control Environment;
6. Accounting System – Policy, Procedure & Manual;
7. Materiality Consideration;
8. Limitations of the engagement, if any, e.g. documents lost, post dated
appointment, no inventory, no cash count was done;
9. Processing Methods- The processing methods used by the entity for
10. Audit Inherent Risks: Audit areas likely to cause problems or require unusual
a) Financial Statements items likely to require adjustments;
b) Conditions likely to require modification of audit tests, such as related party
transaction, going concern problem or possible fraud;