Internal audit of trust

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Querist : Anonymous

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Querist : Anonymous (Querist)
21 June 2017 Hi ,

Can anyone suggest how to do internal audit of trust?

24 June 2017 Specify the nature of trust and the operations.

01 August 2024 Conducting an internal audit of a trust involves examining its financial operations, compliance with statutory requirements, and effectiveness of internal controls. Here's a comprehensive guide to help you perform an internal audit for a trust:

### **1. Understand the Trust's Objectives and Structure**
- **Trust Deed Review:** Begin by reviewing the trust deed to understand the trust’s objectives, governance structure, and specific provisions related to financial management.
- **Trust's Activities:** Familiarize yourself with the trust’s activities, sources of income, types of expenses, and its overall financial framework.

### **2. Document Collection**
- **Financial Statements:** Collect financial statements, including balance sheets, income and expenditure statements, and cash flow statements.
- **Bank Statements:** Obtain bank statements for all accounts held by the trust.
- **Receipts and Payments:** Gather documentation related to all receipts and payments, including invoices, receipts, and vouchers.
- **Trustee Meeting Minutes:** Review minutes of trustee meetings to understand decisions affecting financial management.

### **3. Internal Control Evaluation**
- **Internal Control Systems:** Assess the internal control systems in place, including authorization processes for transactions, segregation of duties, and physical controls over assets.
- **Compliance Checks:** Verify compliance with legal and regulatory requirements, including income tax regulations, charity laws, and any specific regulations applicable to trusts.

### **4. Verify Financial Transactions**
- **Income Verification:**
- **Source of Funds:** Confirm that all sources of income are legitimate and properly recorded.
- **Deposit Reconciliation:** Reconcile bank deposits with recorded income.
- **Expense Verification:**
- **Document Review:** Ensure that expenses are supported by proper documentation and authorized by the trustees.
- **Payment Reconciliation:** Reconcile payments made with bank statements and recorded expenses.

### **5. Asset Management**
- **Asset Register:** Verify the accuracy of the asset register, including fixed assets and investments.
- **Physical Verification:** Perform a physical verification of assets to ensure they match the asset register.
- **Depreciation:** Check that depreciation is accurately calculated and recorded.

### **6. Compliance and Taxation**
- **Tax Filings:** Ensure that the trust is compliant with tax filings, including income tax returns and any other statutory obligations.
- **Exemptions and Deductions:** Verify that any tax exemptions or deductions applicable to the trust are correctly claimed and documented.
- **Regulatory Compliance:** Ensure compliance with regulations specific to trusts, such as the provisions under the Income Tax Act, 1961, or relevant state laws.

### **7. Review of Internal Controls**
- **Control Procedures:** Assess the effectiveness of internal controls, including authorization procedures, reconciliation processes, and safeguarding of assets.
- **Risk Management:** Identify any weaknesses in the internal control system and recommend improvements.

### **8. Reporting**
- **Draft Internal Audit Report:** Prepare a report detailing the audit findings, including any discrepancies, compliance issues, or areas for improvement.
- **Scope of Audit:** Clearly define the scope and objectives of the audit.
- **Findings and Observations:** Include specific findings and observations related to financial management and compliance.
- **Recommendations:** Provide actionable recommendations for improving internal controls and financial management.
- **Discuss with Trustees:** Present the audit report to the trustees, discuss findings, and address any questions or concerns.

### **9. Follow-up**
- **Action Plan:** Work with the trust to develop an action plan to address any issues identified during the audit.
- **Monitor Implementation:** Follow up on the implementation of recommended changes and improvements.

### **Checklist for Internal Audit of a Trust**

1. **Pre-Audit Planning:**
- Review the trust deed and relevant documents.
- Understand the trust's objectives and operations.

2. **Financial Records:**
- Verify income and expense records.
- Reconcile bank statements with recorded transactions.

3. **Internal Controls:**
- Evaluate control systems and procedures.
- Assess compliance with statutory requirements.

4. **Asset Management:**
- Review asset register.
- Perform physical verification of assets.

5. **Tax Compliance:**
- Ensure proper tax filings.
- Verify exemptions and deductions.

6. **Reporting:**
- Prepare and present the audit report.
- Discuss findings with trustees and provide recommendations.

7. **Follow-Up:**
- Develop an action plan for addressing issues.
- Monitor the implementation of recommendations.

By following these steps, you can ensure a thorough and effective internal audit of a trust, providing valuable insights into its financial health and compliance with regulations.




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