Required: (a) Identify areas of inherent risk in the YuRaeKa charity and explain the effect of each of these risks on the audit approach – if necessary highlighting which assertions may be effected or violated. [HINT on some of the risks you should identify: Source of income; completeness of income; restrictions on outflow of funds…etc.]
The YuRaeKa charity was established in 1960. The charity’s aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton, squash, basketball and football.
YuRaeKa has a detailed constitution[1] which explains how the charity’s income can be spent. The constitution also notes that administration expenditure cannot exceed 10% of income in any year.
The charity’s income is derived wholly from voluntary donations. Sources of donations include:
(i) Cash collected by volunteers asking the public for donations in shopping areas,
(ii) Cheques sent to the charity’s head office,
(iii) Donations from generous individuals. Some of these donations have specific clauses attached to them indicating that the initial amount donated (capital) cannot be spent and that the income (interest) from the donation must be spent on specific activities, for example, provision of sports equipment.
The rules regarding the
Required:
(a) Identify areas of inherent risk in the YuRaeKa charity and explain the effect of each of these risks on the audit approach – if necessary highlighting which assertions may be effected or violated.
[HINT on some of the risks you should identify: Source of income; completeness of income; restrictions on outflow of funds…etc.]
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