Accounting for NPOs changed in the mid-1990s with the introduction of sections to the CICA Handbook — Accounting dealing specifically with accounting for not-for-profit organizations.  These rules improved consistency between various not-for-profit organizations, but they also added complexity to the accounting function. These rules became effective for all NPO year ends commencing on or after April 1, 1997.

Auditing standards changed with the introduction of Canadian Auditing Standards (CAS) into the CICA Handbook for years ending December 31, 2010 and later. The changes were introduced in order to harmonize Canadian generally accepted auditing standards to a greater extent with International Auditing Standards.

Information for this publication has been drawn from a variety of sources including the CICA Handbooks, the CGA-Canada Public Practice Manual, and various other publications. As auditing standards and accounting practices are continually changing, readers are advised to review the latest sections of the above documents to determine if any updated standards have been issued, particularly in view of the increased need for auditors to ensure their procedures reflect the changes wrought in the post-Enron world, even for not-for-profit entities.

This course is comprised of six modules, Appendices, and a Case Study. At the end of the Case Study, there are review questions with solution guidance included intended to highlight some of the key aspects of an NPO organization. There are two online quizzes, the first after Module 3 and the second after Module 6 to test your understanding of the concepts.

The first module which focuses on acceptance of the client, defines NPOs, and illustrates some of the important differences between them and other kinds of organizations. Other modules cover topics including the roles of the parties to the audit process, planning the audit including assessing risk and materiality, typical audit procedures, and reporting and communication requirements.

Also included are some sample financial statement formats, an audit report showing a typical qualification for completeness of revenue, and some tax information. Finally, a case study is introduced along with questions (and answers) relating to the case.

This course looks at each phase of the audit, from client and engagement acceptance through issuing the independent auditor’s report. The structure of the six modules will be similar, each one:

• identifies a particular phase or component of the audit process;
• reviews a list of key Canadian Auditing Standards (CAS) that apply to the phase of the audit considered in that module;
• discusses these key selected CASs that have particular applicability to NPOs;
• offers some concluding remarks.

Module 2: Roles of the auditor, management, and those charged with governance — there are a number of CASs for which the various roles must be clearly understood by all the parties if the requirements of the standards are to be appropriately met. The role descriptions and titles vary widely from one NPO to another; therefore, the auditor must understand the intention of each CAS in order to identify with whom to communicate on the matters addressed by the CAS.

Module 3: Audit Planning and risk assessment — includes a description of the audit planning process covering auditor competence, knowledge of the environment, independence, and objectivity. The module outlines the reasons for the preliminary review of internal control and describes risk assessments and consideration of materiality. It is this risk assessment that is the foundation for the selection of appropriate audit procedures. Emphasis is placed on the differences between the financial statement users of NPOs and profit-oriented enterprises.

Module 4: Audit procedures — in designing and completing audit procedures, the auditor must both respond to risks assessed at the planning stage, and ensure that the requirements of numerous CAS are met. This module summarizes the CASs that address specific required procedures, and highlights those that are most common or relevant to the audit of NPOs. A list of the most common audit procedures that may be unique to NPOs is provided.

Module 5: Audit communications — in addition to the Independent Auditor’s Report itself, there are other specific reporting and communication requirements included in CAS, starting with negotiating the terms of the engagement through to post-audit findings reports. This module follows the communication requirements from beginning to end of the audit, and identifies what would be the appropriate form of communication, and the party to which it should be addressed.

Module 6: Conclusions and reporting — this module addresses the key aspects of the standard independent auditor’s report, and common modifications that may be required in the audit of NPO financial statements.

NPO Case Study — illustrates the application of the concepts and techniques discussed in the course. It includes a series of questions and answers that can serve as a prototype for an audit of an NPO.