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For donations received in the post, review correspondence from donors, agree to the donations account and trace sums received to the cash book and bank statements to ensure all completely recorded.
maam what are these donations accounts in the charities context? like are they maintained by charities themselves?
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.
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