Feedback on Approach to the Audit Engagement of Vehicles for Hope Limited

Re: Feedback on approach to the audit engagement of Vehicles for Hope Limited

I would like to have your feedback on my approach to the audit engagement of VHL. Here is my analysis and a recommended course of action for each of the issues I have outlined below.

Impact on Audit Engagement

There are some key risks that facing by VHL which may impact on the audit engagement. During last year, VHL had a few problems with late and incomplete expense reports submitted by board members. These expense reports are expected to submit from board members on a timely basis. And sometimes board members lose their receipts for the expense claim. Because of lack of supporting documentations and delays in claim submission, it makes the engagement more difficult to analysis and performs.

Objectivity and Independence Issue

I have been VHL’s auditor for five years and have been developed closed friendship with some of board members. I have a concern regards to the auditor’s objectivity and independence of the engagement. I recommend that another auditor in the firm to perform the engagement or he or she can assess any potential issues to determine if there is a conflict of objectivity and independence of the engagement.

Internal Control Issue

VHL has two paid staff members, an office accountant and an administrative assistant. There is an issue regarding to segregation of duties. The accountant is responsible for all accounting procedures. The fraud risk is high if there is no second person get involved to perform these duties. I recommend VHL to reconsider the staff members’ duties and have a written policy of the weakness of internal control.

Issues Regarding to Accounting Procedures and Treatment of Transactions

VHL received donation of land, a building, equipment, and $300,000 restricted donation two months ago and have not yet been recorded these transactions in VHL’s accounting records.

I would recommend that VHL to hire a professional appraiser to evaluate the future market value for land, building, and equipment and then record the future market values for these assets in their accounting records.

In regards to the $300,000 restricted donation, the donator restricted these funds are specifically used for purchase automotive toolkits when apprentice mechanics graduate from the program. VHL should ensure those funds are only used to purchase the automotive toolkits. Failed to so will result in the funds returned to the donor. I would recommend that VHL uses deferral method to record any future expenses in the balance sheet as a deferred contribution.

Accounting Software Issue

Currently, VHL is using Excel program to record their accounting information. The accountant manually keys in all the transactions to Excel spreadsheet and several error have been occurred. I would recommend VHL to purchase the off-the-shelf accounting software program. There are several benefits of using off-the-shelf accounting software program such as saving time performing accounting process, access financial data quickly,