Question 1

Segregation of duties: This means that there is no individual involved with more than one activity exclusively. A good example is that the individual handling the cash should not have access to the accounting records. This is because it gives them an opportunity to cover any prevalent fraudulent activities. This aspect will help charity organizations to protect themselves from theft.

Dual signatures for checks disbursements: This control discourages individuals responsible for drawing checks from doing so with the objective of personal gains.

Staff’s background checks and qualification requirements: It is prudent for charitable organizations to inquire whether their staff are qualified, competent and well trained to perform the designated tasks. Background checks are also important for the organization to ensure it has not employed crooks that are likely to swindle funds at the slightest opportunity.

Physical controls: This includes things like cameras and locks in areas that are highly susceptible to theft. This means that the staff’s movements are monitored hence the probability of indulging in undesirable behavior is reduced.

Question 2

CPA firms do not have the responsibility to perform audits of charitable organizations for reduced audit fee, but I think this is something they should consider doing. To begin with, the audit risk for a charitable organization is considered to be low compared to for-profit organizations. Lower risk is associated with lower costs to a CPA firm, and this should translate to reduced audit fees. A CPA firm could also do this as a contribution to the relevant charity. Reducing the audit fee would represent altruism in that the firm is making a donation to charity.

Other benefits that accounting firms accrue by auditing a charity includes improving the firm’s reputation and image, the possibility of receiving more businesses from other charity organizations, advertising prospect and gaining experience on how to audit a charitable organization.

Question 3

Charitable organizations tend to have unique or uncommon audit risk factors. As a result, auditors should always consider risk factors emanating from misstatements arising from both misappropriations of assets and fraudulent financial reporting. The unique audit risk factors include financial stability and operating characteristics, industry conditions, and management characteristics and the influence of management on the control environment.

It is upon the auditors to assess the uncommon or unique audit risk factors posed by a charity as this will help to judge whether the audit procedures that have been planned are sufficient or whether there is a need of modifying the audit procedures.

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