Audit of charitable trusts explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Non-profit entities do not sell for profit, but they still raise and spend other people's money under conditions, so they are audited for who gave what, whether it was spent as promised and whether the records are complete. This article explains how an auditor approaches a charitable trust, society or NGO, and what its accountant should have ready. Fund-wise records are the base of everything else, and our books of accounts and compliance support covers them.
This article is based on the Standards on Auditing issued by ICAI as in force on 4 October 2026; ICAI may revise standards, so check the current text on icai.org. The laws that apply to trusts and societies vary by State and by the nature of the entity; they are explained in our linked section posts and are not summarised here.
The auditor of a non-profit begins by understanding the entity: its legal form, objects, funders, regulators and how money moves (SA 315, paragraph 11). The key risks are incomplete recording of donations, funds spent against the purpose they were given for and unsupported programme expenses. Restricted funds and foreign contribution need separate tracking and separate accounts. If the accounts follow a framework set by a funder or a statute, SA 800 on special purpose frameworks may apply.
Start with the entity
SA 315, paragraph 11, requires the auditor to understand industry, regulatory and other external factors, including the applicable reporting framework; the nature of the entity, including operations, ownership and governance, how it is structured and financed; its accounting policies; its objectives and strategies; and how performance is measured. For a trust or society this means reading the trust deed or memorandum and rules, the registration documents, the list of trustees or governing body, grant agreements, major donor conditions and regulatory correspondence. The framework is often not a company-law framework, so the auditor confirms what basis of accounting applies. Our post on SA 315 covers the standard.
SA 250 (paragraphs 12 to 17) also applies: the auditor gains a general understanding of the legal framework and obtains evidence on laws with a direct effect on the amounts in the statements. For public trusts that law may be a State Act; see our posts on Maharashtra public trusts, section 33, section 34 and Rajasthan public trusts, sections 32 to 34. Income-tax audit of registered non-profit organisations is dealt with in our income-tax guides.
The framework question
If the accounts are prepared in accordance with a framework designed for a particular user, for example a grantor's reporting format, SA 800 requires the auditor to understand the purpose of the statements, the intended users and the steps management took to decide that the framework is acceptable (paragraph 8). The report must describe the purpose and, where needed, the users, and must carry an emphasis of matter alerting readers that the statements may not suit other purposes (paragraphs 13 and 14). See our post on SA 800.
Where the risks lie and what the auditor does
| Area | Main risk | Typical procedures |
|---|---|---|
| Donations and grants | Not all receipts recorded, especially cash and anonymous donations; income recognised too early | Receipt book control (serial numbers, cancelled receipts), bank statement trace, grant agreement terms, confirmations from grantors |
| Restricted and endowment funds | Spent for another purpose, or merged with general funds | Fund-wise statements, agreement conditions, utilisation certificates, review of transfers between funds |
| Foreign contribution | Mixed with domestic funds, or used for non-permitted heads | Separate bank account and ledger, reconciliations; see FCRA audit requirements |
| Programme expenses | Overstated, unsupported or paid to related parties | Vouching to beneficiary lists, vendor documents, attendance and delivery records, comparison with budgets |
| Administrative costs | Mixed with programme costs | Allocation basis review |
| Fixed assets and investments | Not owned in the entity's name; corpus not invested as required | Title documents, investment statements and confirmations |
| Related parties | Transactions with trustees and their organisations | Register review, SA 550 procedures |
| Presentation | Fund-wise reporting incomplete | Check the format required by the applicable law or the funder |
Donations and receipts
Cash donations are the high-risk area: there is rarely an independent record of what should have come in. The auditor looks at the control over receipt books, the sequence of serial numbers, spoiled and unused books, same-day banking, and comparison with events and campaigns. For grants, the agreement determines when income is recognised and what has to be spent; unspent restricted grants may be a liability or a fund, depending on the terms and the framework.
Restricted funds
The principle is that money received for a purpose stays traceable to that purpose. The auditor obtains fund-wise opening balances, receipts, expenses and closing balances, reads the conditions for each and tests that spending matches the permitted purpose and period. Transfers between funds and loans from restricted to general funds are red flags that need approval and documentation.
Foreign contribution
Foreign contribution requires its own account, records and audit under the relevant Act. The auditor confirms that the separate accounts exist and agree to the bank, and that the entity's returns tie to the books. The rules themselves are in our section posts on the FCRA intimation, maintenance of accounts and audit; the audit does not restate them.
The auditor's report
For many non-profits the report format is set by the State law, by the funder or by the framework. The auditor should follow the law's prescribed format, and where an emphasis of matter, a qualification or a matter of regulatory concern arises, express it as the standards require. See our post on SA 705 for modified opinions.
Worked example (illustrative)
Disha Vidya Samiti, an invented society running two schools for under-served children, reports donations of Rs 2.4 crore, of which Rs 60 lakh is cash. The auditor reads the grant agreements and finds an illustrative Rs 45 lakh grant restricted to teacher training. The fund statement shows Rs 20 lakh spent on teacher training and Rs 15 lakh on building repairs charged to the grant. The Rs 15 lakh is not an allowed use under the agreement. The auditor asks for the donor's written consent; there is none. The auditor reports the matter, and management shows the Rs 15 lakh as a temporary loan from the restricted fund, to be repaid. The receipt-book check also shows two serial numbers missing in a book used at an event; the trustees record a note on them, and the auditor asks for a written explanation.
Documents to keep ready
- Trust deed or memorandum and rules, registration certificates and the current governing body list.
- Grant and donor agreements, utilisation certificates and correspondence.
- Receipt books, cash registers and bank statements for every account, including foreign contribution accounts.
- Fund-wise ledgers and the basis of allocating common costs.
- Beneficiary lists and programme records supporting expenses.
- Title documents, investment statements and registers of assets.
Common lapses
- Cash donations banked late or not recorded.
- Restricted funds used for general expenses.
- Foreign contribution mixed with domestic funds.
- Administrative expenses booked as programme expenses.
- Property held in the name of an individual trustee.
Need help getting a non-profit audit-ready?
Fund-wise ledgers, receipt book controls and an organised grant file are the difference between a short audit and a long one. Our team can maintain the books, prepare fund statements and organise the supporting file; see our books of accounts and compliance support.
Key takeaways
- Start from the entity's deed, rules, funders and regulators.
- Donation completeness and restricted fund use are the main risks.
- Foreign contribution needs separate accounts and records.
- Where a funder's framework is used, SA 800 applies.
- State law and tax law are covered in our linked posts and income-tax guides.
Read next
- Audit, review, agreed-upon procedures and compilation compared
- Audit of educational institutions and hospitals
- FCRA audit requirements and separate accounts
- SA 800, special purpose frameworks
Disclaimer: Based on the Standards on Auditing, the review, assurance and related services standards, the Compendium of Standards on Internal Audit (as on 1 October 2022) and the Compendium of Forensic Accounting and Investigation Standards (as on September 2025) issued by the Institute of Chartered Accountants of India, in the versions named in the article, as consulted on 4 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.