Charitable Trust Audit
The main objective of auditing charitable institutions is to allow the assessing officer to convince himself concerning the genuineness of the privilege/exemption claim under section 11. It is even to verify if the trust has complied with qualifications guided by the law or ordinance. The accountant has to check the ‘balance sheet’ and the ‘profit and loss’ exhibiting an authentic and fair view. He should consider all the concerning compliance with the provisions of the Act by the institution in respect of the preservation of books of accounts, data, and returns from members and other related documents.
What are the responsibilities of an accountant in a Charitable Trust?
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Apart from satisfying Assessing Officer about the genuineness of activities of trust in the claim for exemption under section 11, he should also work diligently with all the requirements approved by the law.
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The accountant has to check the balance sheet and the profit and loss and give an impression on whether they exhibit an accurate and fair view.
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The accountant must note that the SA’s announced by the ICAI would introduce to the audit of charitable trust under section 12A (1) (b) of the Income Tax Act 1961.
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In matters of professional responsibilities, the accountant should adhere with the “Code of Ethics” published by the ICAI in managing the audit of charitable trust under section 12A(1)(b)
Requirement for Audit of Charitable Trust?
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Following Clause (b) of sub-section (1) of section 12A of the Income Tax Act, it requires complete audit if the “whole income” of the organization for the appropriate year more than the greatest or maximum amount not liable to income tax.
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It determines that if the organization’s total income in a prior year-before delivering a considerable impact to the provisions of the Act is not more than the said maximum amount, which is not liable to income tax, in that case, no audit is needed.
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It is a prime issue whether any Contributions with a particular direction should form a part of the corpus involved in income.
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The answer is pretty simple. Under the note of guidance determining the ceiling limit of the highest amount, which is not liable to pay income tax for qualification to audit under section 12A (1) (b), donations or grants towards the organization’s corpus are to be added.
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Nevertheless, income exemptions U/s 10, such as all the dividends, should not get combined in the income more than the maximum amount, which is not payable.
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However, during the calculations, if the total income does not seem to surpass the limit of the maximum expense, then it is not chargeable to income tax.
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Despite this, eventually it may appear that the ‘total income’ surpasses the maximum liability may not get subjected to income tax on account of incidents. For example: – if an unforeseen misapplication of the investments designated U/s 11(2) (b), then in such cases, audited reports can get presented with a corrected return, respectively.
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Moreover, the donations collected by an organization whose income is exempt ‘under sections 11 & 12′ or ‘Clause (23’) or ‘Clause (23AA)’ or ‘Clause (23C’) of section 10 of the Act are qualified for deduction under section 80G.
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It should be in considerations only when it has provided after the approval by the Commissioner of Income-tax or Director-General (exemptions) under section ’80G (5) (vi)’.
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In a firm discourse, the primary responsibility of the accountant is required to audit of Charitable Trust as per section 12A, unless there is a particular requirement in the Act/rule/form prescribed. There is no obligation forced upon the accountant to confirm or accredit the compliance given under the provisions of any other law.
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Other than the conditions stated in section 12A (1) (b), the auditor must abide by a few more critical requirements. Section 12A (1) (a) deals with the requirements concerning registration of an organization complying with the Income Tax Act. As a result of this, all the trust registration application has to be furnished in Form No.10A (duplicate), prescribed under Rule 17A of the Act.
What are the Verifications of Audit of Charitable Trust?
Verification in auditing is a method in which auditors satisfy themselves with the original existence of ‘assets’ and ‘liabilities’ displaying in the Declaration of Financial Position. It examines existence, possession, title, ownership, decent valuation, and appearance of any charge or lien over assets. The Accountant is required to verify:-
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Income as outlined under sections 11 and 12 of the Income-tax Act. It can be divided into five broad classes such as:-
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Income with Direction:- Voluntary contributions made with a specific direction that they shall form part of corpus;
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Income with No Direction:-Voluntary contributions made without a particular direction that they shall form part of corpus;
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Outcomes of Activities:- Profits and gains of business which are incidental for achieving the objects;
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Receipts:– Other customary receipts & Capital gains;
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Check the amount used during that year by separating the figures from:-
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Income and expense account;
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Balance sheet and/or receipts and returns account.
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Examine the donations given to another trust in the name of section 11(3) (d).
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Examine the estimate of services made accessible to the specified class of persons in terms of section 12(2).
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Examinations of anonymous donations concerning the particulars prescribed by the Government. Hence, it would be desirable for the accountant to get proper management representation.
DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.
It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information