Your firm is the auditor of Zhao’s Charity for Pensioners. The charity was formed many years ago from a large gift by the Zhao family, the income from which is used to pay pensions to needy people. The original gift has been invested in fixed-interest investments and shares in listed companies. The trustees manage the charity, and the full-time administrator keeps the accounting and other records.

The draft summarized income and expenditure account for the year ended September 30, 2020, and an extract from the balance sheet are shown below, together with the audited figures for 2019.

The following information has been provided:

1. During the year, some shares were sold at a profit of $182,900 and the proceeds were reinvested in shares of other companies.

2. There were no purchases or sales of fixed-interest investments in the year ended September 30, 2020. In the year ended September 30, 2019, some of the fixed-interest investments were sold and others were purchased using the proceeds of sale.

3. The charity is managed by voluntary trustees who meet four times a year, and the administrator keeps the minutes of the meetings.

4. The administrator keeps the accounting records.

5. As auditor of the charity, you prepare the financial statements from the accounting records kept by the administrator and audit those financial statements. Your auditor’s report is addressed to the trustees of the charity.

Required

Describe the audit work you would carry out to verify:

a. Income from investments: your audit tests should verify that all the income from the investments has been received by the charity and included in the financial statements, including dividends from the shares in listed investments bought and sold during the year.

b. The ownership of the fixed-interest investments and shares in listed companies.

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Income and Expenditure Account for Year Ended September 30 2019 2020 Income From fixed-interest investments 41,900 44,200 123,900 From shares in listed companies 123,500 168,100 165,400 2020 2019 Expenditure Payments to pensioners 141,300 144,300 Administration costs 21,600 20,500 Audit and accounting 4,700 4,500 Sundry expenses 2,800 2,600 170,400 171,900 Net (deficit) for the year (2,300) (6,500) Extract from Balance Sheet as at September 30 Cost of investments Fixed-interest investments 511,200 511,200 Shares in listed companies 1,445,600 1,262,700 1,956,800 1,773,900