Page 84 - CA Final PARAM Digital Book.

Part 1- MRI

QNO Practical case on identifying different types of risk. New Course – (SM23)
31.500 TITANIUM CNO-- MRI.040
You have recently been appointed as an auditor of NGO working in the field of “upholding democracy” for
the first time. The last year accounts of NGO were unaudited and its activities were limited at a small scale.
However, it is only in the current year that NGO has received substantial donations including foreign funds.

The said NGO is also crowdfunding its donations. The government has now legislative power to cancel
FCRA certificate of NGO. Since it is working in field which encompasses political and social fields,
accusations and counter - accusations are flying thick and fast.
What factors you may consider for assessing audit risk?
Answer For assessing audit risk, auditor shall consider all components of audit risk. The said NGO is working in a
political-cum-social field which can make its activities inherently risky. Crowdfunding donations may have to
be seen in relation to constitution of NGO which may make these risky. Since the NGO is in receipt of foreign
funds, it may make transactions inherently risky. The credibility and integrity of persons behind NGO is
important. Shady NGOs can be involved in money laundering activities and may be involved in mis utilizing
funds from donors. Since last year accounts were unaudited, it also increases inherent risk due to probable
effect of misstatements, if any, of last year. Non-compliance with strict laws has the potential to make
activities of NGO inherently risky.

Since NGO has received substantial donations in current year and its activities were on a relatively small
scale during last year, formal controls may not be in place. Lack of formal controls may lead to non-
compliance with laws. Non-compliance with FCRA can have serious consequences including cancelling such
certificate of NGO. Therefore, control risk could be high.

Further, audit for NGO has been accepted for the first time. There may be a lack of understanding of activities
of NGO. It may lead to higher detection risk due to inappropriate sampling procedures or faulty application
of audit procedures.

QNO Assertions Old Course – (PM17, SM21)
33.000 TITANIUM CNO—MRI.060
What do you mean by Assertions?
OR
SA 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity
and Its Environment” categorises the types of assertions used by the auditor to consider the different
types of potential misstatements that may occur. Briefly explain with example.
Answer ➢ Define Assertions: - Representations made by management i.e. information given by
management through financial statements. There are 2 types explicit and implicit. Whatever

written in financial statements is explicit. Whatever is not but understood is implicit. To
reduce confusion SA 315 prescribes standard implicit assertions which also help in detecting
important misstatements.

Assertions – Representations by management, explicit or otherwise, that are embodied in the
financial statements, as used by the auditor to consider the different types of potential
misstatements that may occur.

www.auditguru.in PARAM 4.1 | P a g e