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Unit 13: Tax and Cost Audit

(A) The person in receipt of the income has made an application for registration of the trust or Notes
institution in the prescribed form and in the prescribed manner to the Commissioner
before the expiry of one year from the date of the creation of the trust or establishment of
the institution. The Commissioner can, however, in his discretion admit an application
for registration after the expiry of the period aforesaid.
(B) Where the total income of the trust or institution as computed under this Act, without
giving effect to the provisions of Sections 11 and 12 exceeds the maximum amount which
is not chargeable to income tax in any previous year i.e. 1,00,000 for the A.Y. 2007-08, the
accounts of the trust or institution for that year have been audited by an accountant as
defined in the explanation below sub-section (2) of Section 288 and the person in receipt of
the income furnishes along with the return of Income for the relevant assessment year, the
report of such audit in the prescribed form duly signed and verified by such accountant
and setting forth such particulars as may be prescribed. Rule 17B of the Income tax Rules,
1962 provides that the report of audit of accounts of a trust or institution which is required
to be furnished under Clause (b) of Section 12A should be in Form No. 10B. The audit
programme is outlined in the following paragraphs:
(a) Preliminary:
(i) Obtain a resolution from the trust specifying the appointment as also indicating
the scope of audit. In particular, the resolution should specify the duties of the
auditor in relation to the items specified in the annexure to the prescribed
Form No. 10B.
(ii) Obtain a letter of appointment from the trust. Although the audit may have
been conducted in the past by a person appointed as an auditor for the purpose
of Section 12A, having regard to the spirit of the requirement contained in
clause (8) of Part-I of Schedule I to the Chartered Accountants Act, 1949, it is
suggested that the auditor appointed for the purpose of Section 12A, should,
before accepting the audit, communicate with such previous auditor.
(iii) Obtain a certificate as to the opening balances of assets and liabilities and the
fund.

(iv) Obtain a list of books of accounts which are maintained by the trust.
(v) Obtain a certificate from the trust as to the system of accounting and internal
control.

(vi) Obtain from the trust a list of the institutions/activities run/carried out by the
trust.
(vii) Obtain from the trust a certified true copy of the Deed of Trust or any other
scheme containing the objects and conditions of the trust as operative from
time to time.

(b) Routine Checking:
(i) Check the books of account and other records having regard to the system of
accounting and internal control.

(ii) Vouch the transactions of the trust to satisfy that:
(a) The transaction falls within the ambit of the trust;
(b) The transaction is properly authorized by the trustees or other delegated
authority as may be permissible in law;

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