completeness of income

All “accounts” must be those of the CLIENT – that is whose financial statements you are auditing.

Imagine a charity – any charity – you must know one. Perhaps you know it sells merchandise of some sort – this is “revenue” – i.e. income received in an “exchange transaction” – i.e. I transfer goods to you/you transfer cash to me.

But a charity’s main sources of income will most likely be made up of donations and/or grants (IAS 20 applies).

You can’t record donations in a “revenue” a/c because it’s not “in the normal course of business” in the sense of business – there is no exchange transaction – only the voluntary giving of donors – and it must be recorded separately Cr “Donations a/c”

It is much more difficult therefore to confirm the completeness of such income in charities – although increasingly charities like donors to set up direct debits so regular transfers are made into a bank a/c. Also, in the UK, for example, because a tax payer can claim higher rate tax relief on charitable giving – charities have an incentive to obtain a record from donors in order to reclaim tax from the government. Obviously not examinable in AA but should help you think about how charities are funded.