Modern Day Gospel Fellowship is a non-denominational charity organisation established in 2001. The charity’s aim is to provide support to children from disadvantaged backgrounds. The support comes in two folds i.e. academic such as scholarships and related academic activities and sports such as tennis, swimming and football. The aim is to provide total well-being to humanity. Modern Day Gospel Fellowship has detailed constitution which explains how the charity’s income can be spent. The constitution also notes that the administration expenditure cannot exceed 6% of annual income. The charity’s income is derived wholly from voluntary donations which includes: • Cash collected from public donations by volunteers. • Cheques sent to the charity’s head office. • Donation from generous individuals. Some of these donations have specific clauses attached to them indicating that the initial amount donated (capital) cannot be spent. However, the income (interest) from the donation can only be spent on specific activities, for example, provision of sport equipment and scholarships. • The rules regarding the taxation of charities in the country where Modern Day Gospel Fellowship is based are complicated, with only certain expenditure being allowable for taxation purposes and donations of capitals being treated as income in some situations. You are required to: i. Identify areas of inherent risk in Modern Day Gospel Fellowship and explain the effect of each of this risk on the audit approach. ii. Explain why the control environment may be weak at Modern Day Gospel Fellowship.
a) Modern Day Gospel Fellowship is a non-denominational charity organisation
established in 2001. The charity’s aim is to provide support to children from disadvantaged
backgrounds. The support comes in two folds i.e. academic such as scholarships and related
academic activities and sports such as tennis, swimming and football. The aim is to provide
total well-being to humanity.
Modern Day Gospel Fellowship has detailed constitution which explains how the charity’s
income can be spent. The constitution also notes that the administration expenditure cannot
exceed 6% of annual income.
The charity’s income is derived wholly from voluntary donations which includes:
• Cash collected from public donations by volunteers.
• Cheques sent to the charity’s head office.
• Donation from generous individuals. Some of these donations have specific clauses
attached to them indicating that the initial amount donated (capital) cannot be spent.
However, the income (interest) from the donation can only be spent on specific
activities, for example, provision of sport equipment and scholarships.
• The rules regarding the
Gospel Fellowship is based are complicated, with only certain expenditure being
allowable for taxation purposes and donations of capitals being treated as income
in some situations.
You are required to:
i. Identify areas of inherent risk in Modern Day Gospel Fellowship and explain
the effect of each of this risk on the audit approach.
ii. Explain why the control environment may be weak at Modern Day Gospel Fellowship.
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