In forming an opinion on management’s assertions about whether fundraising revenue is presented fairly in all material respects, the auditor develops an audit plan based on an assessment of:

1. inherent and control risk –  in accordance with ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. For the audit of fundraising revenue, as well as other material account balances or classes of transactions, the auditor assesses inherent risk and obtains an understanding of the internal control structure to assess control risk, and to determine whether the evaluation and testing of controls and the application of substantive tests will reduce assurance engagement risk to an acceptably low level with respect to the assertions about the completeness and recording of fundraising revenue;
2. fraud risk – in accordance with ASA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of a Financial Report when the auditor performs risk assessment procedures and related activities under ASA 315, the auditor needs to perform certain procedures^[2] to obtain information for use in identifying, assessing and responding to risks of material misstatement due to fraud. ASA 240 paragraphs 26 and 47 deem that there are risks of fraud in revenue recognition and the auditor needs to document their conclusion on the risks associated with revenue recognition even if they are of the opinion that it is not applicable in the engagement circumstances; and
3. materiality of fundraising revenue – in accordance with ASA 320 Materiality in Planning and Performing an Audit, and the discussion of materiality in Accounting Standards AASB 1031 Materiality. In determining the materiality of fundraising revenue, qualitative materiality considerations may be significant, given the characteristics of a not-for-profit entity, and the nature of and sources from which fundraising revenue is derived. Qualitative factors that the auditor may consider include:
   1. governing documents or reporting frameworks prescribing specific recognition and/or disclosure requirements in the financial report;
   2. whether law, regulation or the applicable financial reporting framework affect users’ expectations regarding the measurement or disclosure of certain items;
   3. key disclosures in relation to the industry in which the entity operates;
   4. whether attention is focused on a particular aspect of the entity’s business that is separately disclosed in the financial report; and
   5. indicators of deviations from normal activities such as the reversal of a trend, turning a loss into a profit or creating or eliminating the net asset position in the balance sheet.

ASA 315 states that the auditor needs to perform risk assessment procedures to provide a basis for the identification and assessment of risks of material misstatement at the financial report and assertion levels. Sufficient appropriate audit evidence needs to be obtained to provide a basis on which to conclude whether the cash donations portion of fundraising revenue included in a not-for-profit entity’s financial report is, in all material respects, complete. In some cases there may be assurance engagement risk that cash donations may not be recorded from all sources, and consequently, materially understated.

In accordance with ASA 330 The Auditor’s Responses to Assessed Risks, “the auditor shall design and perform further audit procedures whose nature, timing and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level”. ASA 330 states that in designing these further audit procedures consideration should be given to the likelihood of material misstatement due to the particular characteristics of the relevant class of transactions and whether the risk assessment takes account of relevant controls, their operating effectiveness and the overall responsibility by management/governing body for effectively monitoring these activities/controls, in determining the extent of substantive procedures to be undertaken^[3].

ASA 330 also requires the auditor to evaluate before the conclusion of the audit whether the assessments of the risks of material misstatement at the assertion level remain appropriate and whether sufficient appropriate audit evidence has been obtained^[4].

As the revenue of each not-for-profit entity may be derived from, and obtained by, different sources and methods, each source has its own distinct inherent and control risk. In assessing whether cash donations as a portion of fundraising revenue are properly stated the auditor’s considerations may include an assessment of the following:

1. nature of the various sources of fundraising revenue received by the not-for-profit entity, the risks associated with their method of receipt, including any specific risks in the context of the entity’s activities;
2. loss of incoming resources through fraud: the possibility that the not-for-profit’s records of incoming resources to which it is legally entitled may be incomplete as a result of fraud. A common type of fraud against not-for-profit entities is the diversion of donations to bank or building society accounts which the not-for-profit governing body does not control;
3. effectiveness of the controls that are applied, given that some controls can usually be established for each source of fundraising revenue; and
4. materiality of each source of fundraising revenue in relation to all of the not-for-profit entity’s revenue.

Appendix 1 to this guidance statement sets out, for illustrative purposes only, the risks associated with various sources of fundraising revenue, the controls which a not-for-profit entity may implement in respect of those fundraising revenues, and some indicative substantive procedures which the auditor may consider in relation to the audit of each source of fundraising revenue.