Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Deduction
 To our parent, who scarify for our benefits and make us
what we are now.
 To our brothers and sisters, who we grew together.
 To our professors and lecturer, who gave us their
knowledge and experience.
 To our friends, who support us all the time.
 To our country Palestine.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Abstract
This study aimed to explain and clarify the deference between auditing in
profit and non for profit organizations, to solve the refusing that exist in our
mind.
The three researchers in collecting data depend on the primary sources and
secondary sources, to achieve the goals of the study and in answering its
questions. Through this approach they obtained the secondary data which
formed the theoretical frame for the study. Meanwhile the practical frame
depended on an interview which was designed for the subject goal.
The study came to a group of results and recommendations, which are
related to explain the deference between auditing in profit and non for profit
organizations, and the most important results are, “there is no any difference
between the audit standards used in profit and nonprofit organization but,
there is a difference between audit procedures used in audit on profit and
nonprofit organization.”
The most important recommendations of which are more efforts to create
of a Palestinian law for profit corporations and applied to suit the needs of
the Palestinian companies especially in this volatile economy.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Contents
Deduction............. ..................................................................................................2
Abstract............. .....................................................................................................3
Content............. ......................................................................................................4
Chapter 1: (GENERAL FRAME WORK OF THE RESEARCH) ................5
1.1 Introduction............. ........................................................................................6
1.2 reachears problem ............. .............................................................................7
1.3 Assumption ............. .......................................................................................7
1.4 Research Hypotheses ............. ........................................................................8
1.5 Research Objectives........................................................................................9
1.6 The Importance Of The Study ............. ........................................................10
1.7 Research Methodology....... ..........................................................................10
Chapter 2:( CONCEPTS AND PRINCIPLES ) .............................................11
2.1 Auditing in Theory.........................................................................................12
2.2 Audit History .................................................................................................14
2.3 Importance of Audit .......................................................................................16
2.4 student requirements .....................................................................................17
2.5 administrator requirements ............................................................................18
Chapter 3 (DIFFRENCE BETWEEN PROFIT AND NONPROFIT ORGANIZATION) ...21
3.1 Defining of Profit and Non-Profit Organizations .........................................22
3.2 Law between Profit and Non-profit Organizations .......................................23
3.3 Financial Statements .....................................................................................24
3.4 Internal System ..............................................................................................28
3.5 Documents used in The Profit and Non-profit Organizations ......................30
3.6 Accounting Standards between Profit and Non-profit Organizations ...........31
3.7 Audit Standards used in Profit and Non-profit Organizations .....................32
3.8 Audit Procedures used On Profit and Non-profit Organizations ..................35
Chapter 4: (PREVIUOS STUDIES AND INTERVIEWS WITH THE AUDITORS) .........38
4.1 Previous Studies ............................................................................................39
4.2 Interviews with auditors............. ..................................................................45
Chapter 5: (Results and Recommendations) ..................................................58
5.1 Result ...........................................................................................................59
5.2 Recommendations.........................................................................................61
5.3 References .....................................................................................................62
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Chapter 1
GENERAL FRAME WORK
OF THE RESEARCH
1.1
Introduction
1.2 Research Problem
1.3
Assumption
1.4
Research Hypotheses
1.5
Research Objectives
1.6
The Importance Of The Study
1.7 Research Methodology
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
1.1 INTRODUCTION
Since Many Years, Man was doing his work and make its accounts
without the knowledge that reliable on, But with the development of science
and technology and the spread of trade across the world It has become
necessary and important to find the science of financial operations that made
every second.
After the creation of accounting science the development of trade and the
spread of companies across the world and the presence of multinational
companies therefore, accounting is no longer enough alone, so the experts
decides to find a complement to the science of accounting which is called
Auditing.
Audit is an examination and verification of a company's financial and
accounting records and supporting documents by a professional, such as a
Certified Public Accountant.
Auditing becomes the first science that makes the owner and the donor feel
safety when he sees the signature of the external auditor on audit report.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
In This Research we decide to examine an important issue in the audit
which is “Comparative Study between Audit on Profit Organizations and
Audit on Non-profit Organizations.”
1.2 RESEARCH PRPBLEM
When many people talk about audit they forgot an important type of audit
which is audit on non-profit organizations, may be some of them think that
there is no difference between audit on profit and nonprofit organizations
and others don't know the main differences so we decide to discuss this.
"Is There Any Difference between Audit on Profit Organizations and Audit
on Non-profit Organizations"
1.3 ASSUMPTION
Yes, there is a big Difference between Audit on Profit Organizations and
Audit on Non-profit Organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
1.4 RESEARCH HYPOTHESES
o There is a different between the mean of profit organization and
nonprofit organization.
o There is a different between accounting for profit organizations and
nonprofit organizations.
o There is a difference between the accounting standards used in profit
and nonprofit organization.
o There is no any difference between the audit standards used in profit
and nonprofit organization.
o There is a difference between audit procedures used in audit on profit
and nonprofit organization.
o There is a difference between documents used in the profit
organization and nonprofit organization.
o There is a different between financial statements for profit and
nonprofit organizations.
o There is a difference between the low used in profit organizations and
nonprofit organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
1.5 RESEARCH OBJECTIVES
o Differentiate between the mean of profit organization and nonprofit
organization.
o Differentiate between accounting for profit organizations and
nonprofit organizations.
o Differentiate the accounting standards used in profit and nonprofit
organization.
o Differentiate between the audit standards used in profit and nonprofit
organization.
o Differentiate between audit procedures used in audit on profit and
nonprofit organization.
o Documents used in the profit organization and nonprofit organization.
o Differentiate between financial statements for profit and nonprofit
organizations.
o Differentiate between the low used in profit organizations and
nonprofit organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
1.6 IMPORTANCE OF THE STUDY
This Study Shows Similarities and differences between audit on profit
organizations and nonprofit organizations which gives the answers to many
questions among people in general and especially among accountants on the
relationship between profit and nonprofit organizations, the extent of the
differences between them, procedures used on accounting and audit and
ending with financial statements.
1.7 RESEARCH METHODOLOGY
o Source of Data Collection:
 Using Primary and Secondary Sources:
Primary: Interviews with auditors.
Secondary: Data collected from previous studies.
o Research Sample:
 Five audit offices and 10 companies including profit
and nonprofit.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Chapter 2
CONCEPTS AND PRINCIPLES
2.1 Auditing in Theory
2.2 Audit History
2.3 Importance of Audit
2.4 Auditing Objectives
2.5 Types of Auditors
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
2.1 AUDITING IN THEORY
Audits are performed to ascertain the validity and reliability of
information; also to provide an assessment of a system's internal control.
The goal of an audit is to express an opinion on the person - organization system (etc.) in question, under evaluation based on work done on a test
basis.
Due to practical constraints, an audit seeks to provide only reasonable
assurance that the statements are free from material error. Hence, statistical
sampling is often adopted in audits. In the case of financial audits, a set of
financial statements are said to be true and fair when they are free of
material misstatements - a concept influenced by both quantitative
(numerical) and qualitative factors.
Auditing is a vital part of accounting. Traditionally, audits were mainly
associated with gaining information about financial systems and the
financial records of a company or a business. However, recent auditing has
begun to include non-financial subject areas, such as safety, security,
information systems performance, and environmental concerns. With
nonprofit organizations and government agencies, there has been an
increasing need for performance audits, examining their success in satisfying
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
mission objectives. As a result, there are now audit professionals who
specialize in security audits, information systems audits, and environmental
audits.
In financial accounting, an audit is an independent assessment of the
fairness by which a company's financial statements are presented by its
management. It is performed by competent, independent and objective
person(s) known as auditors, who then issue an auditor's report based on the
results of the audit.
In cost accounting, it is a process for verifying the cost of manufacturing
or producing of any article, on the basis of accounts measuring the use of
material, labor or other items of cost. In simple words the term, cost audit,
means a systematic and accurate verification of the cost accounts and
records, and checking for adherence to the cost accounting objectives.
According to the Institute of Cost and Management Accountants of
Pakistan, a cost audit is "an examination of cost accounting records and
verification of facts to ascertain that the cost of the product has been arrived
at, in accordance with principles of cost accounting."
An audit must adhere to generally accepted standards established by
governing bodies. These standards assure third parties or external users that
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
they can rely upon the auditor's opinion on the fairness of financial
statements, or other subjects on which the auditor expresses an opinion.
The Definition for Auditing and Assurance Standard (AAS) 1 by ICAI –
“Auditing is the independent examination of financial information of any
entity, whether profit oriented or not, and irrespective of its size or legal
form, when such an examination is conducted with a view to expressing an
opinion thereon”
2.2 AUDIT HISTORY
Egyptians recorded in history as first people who work and develop
accounting and auditing job, in which the public employees were keeping
books for controlling the revenues and expenses.
The history record that both Greece and Egypt governments were using
accounting and auditing to ensure the truth of accounts.
The auditor in Greece was review the entries recorded in books. The word
"Auditing" derived from Latina word “Audire" that means listening. Then in
fifteenth century the double entry method discovered, that lead the
implementation of auditing more than easy and spread that lead to develop
auditing job. As result for industry revaluation and trading progress in
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Europe to establish huge projects and reason which help to develop auditing
job and increase demand for auditing services, in which limited corporations
established.
Economic and industrial progress lead to establish limited corporations
that considered danger and important in the same time, it form important
rule in the economy, so many laws issued to organize it.
Spread between management and property increase the demand on auditing
services to protect owner’s behalf.
The taxation and financial policies were playing important rule in auditing
developing. As shown before we note increase demand on auditing services,
the professional organizing movement discovered in UK in 1854, then in
Canada in 1880 then France 1881, then USA in 1882, Germany 1896,
Australia 1904, Finland 1911.
The increase of auditing services demand lead to establish associations to
organize.
The job and protect members behalf in societies such as in USA and UK:
o American Institute of Certified Public Accountants (AICPA) -USA
o Citified Public Accountants (APAS) - USA
o Financial Accounting Standers Board (FASB) - USA
o Internal Revenue Service’s (IRS) – USA
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
o The Institute of Chartered Accountants (ICA) - UK
o The Association at Certified Accountants (ACCA)-UK
2.3 IMPORTANCE OF AUDIT
There are many groups depend on Auditor report for make specific
decisions such as customers, management, banks and governmental bodies.
Importance of Audit for Customer:
o Main source of information through audited financial statements.
o Basic to get loans from banks.
o Basic for additional investments.
o Basic for prepare taxation statements.
o Basic to ensure of fairness of financial position.
Importance of Audit for management:
Management depends completely upon accounting data, in
planning and takes suitable decisions, and evaluates it.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Importance of Audit for Banks:
Audited Financial statements depend on Auditor report to analyze
statements before provide loans, and depended as basic to
determine degree of risk.
Importance of Audit for governmental bodies:
Audited financial statements depended for planning leading and
controlling the economic entities to ensure of binding laws and
procedures.
2.4 AUDITING OBJECTIVES
We can determine Auditing Objectives in two main groups traditional and
modern:
Traditional objective: classify into main and secondary
o Main objectives:

ensure of truth of financial statements

express independent opinion
o Secondary objectives:

Discover fraud.

Used in planning and polices.

Ensure of fairly of financial statements.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations

Determine tax amounts.

Submit various reports.
Modern objectives:
o Control the plan and follow-up it's executes and the range of
goals achievement.
o Asses’ activities results.
o Achieve maximize range of efficiency and effective.
o Achieve maximize range of comfortable for society.
2.5 TYPES OF AUDITORS
Auditors of financial statements can be classified into two categories:
External auditor:
Statutory auditor is an independent Public accounting firm engaged
by the client subject to the audit, to express an opinion on whether the
company's financial statements are free of material misstatements,
whether due to fraud or error. For publicly-traded companies, external
auditors may also be required to express an opinion over the
effectiveness of internal controls over financial reporting. External
auditors may also be engaged to perform other agreed-upon
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
procedures, related or unrelated to financial statements. Most
importantly, external auditors, though engaged and paid by the
company being audited, are regarded as independent auditors.
The most used external audit standards are the US GAAS of the
American Institute of Certified Public Accountants; and the ISA
International Standards on Auditing developed by the International
Auditing and Assurance Standards Board of the International
Federation of Accountants
Internal auditors:
Internal auditors employed by the organization they audit. They
perform various audit procedures, primarily related to procedures over
the effectiveness of the company's internal controls over financial
reporting. Due to the requirement of Section 404 of the Sarbanes
Oxley Act of 2002 for management to also assess the effectiveness of
their internal controls over financial reporting (as also required of the
external auditor), internal auditors are utilized to make this
assessment. Though internal auditors are not considered independent
of the company they perform audit procedures for, internal auditors of
publicly-traded companies are required to report directly to the board
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
of directors, or a sub-committee of the board of directors, and not to
management, so to reduce the risk that internal auditors will be
pressured to produce favorable assessments.
Consultant auditors are external personnel contracted by the firm to
perform an audit following the firm's auditing standards. This differs from
the external auditor, who follows their own auditing standards. The level of
independence is therefore somewhere between the internal auditor and the
external auditor. The consultant auditor may work independently, or as part
of the audit team that includes internal auditors. Consultant auditors are used
when the firm lacks sufficient expertise to audit certain areas, or simply for
staff augmentation when staff are not available.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Chapter 3
DIFFRENCE BETWEEN PROFIT AND NONPROFIT
ORGANIZATION
3.1 Defining of Profit and Non-Profit Organizations
3.2 Law between Profit and Non-profit Organizations
3.3 Financial Statements
3.4 Internal System
3.5 Documents used in The Profit and Non-profit Org.
3.6 Accounting Standards between Profit and Non-profit
Org.
3.7 Audit Standards used in Profit and Non-profit Org.
3.8 Audit Procedures used On Profit and Non-profit Org.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.1 DEFINING OF PROFIT AND NON-PROFIT
ORGNIZATION
Profit organization
Organizations interact through various markets to achieve profit and to
maximize share holders wealth, profit organization classified into three
categories':
o proprietorship: Organization owned by one person, he and just he has the
authority to make anything, the organization end if he die.
o Partnership: Organization owned by two or more persons this organization
also provide goods and services to a chive profit.
o Corporations: Organization owned by many persons accordance to quota
of shares for each one, each one has responsibility to his shares.
Nonprofit organization:
Organizations do not have share holders it may have members, it may be
association. The organization may be controlled by its members who elect
board of directors or board of trustees, nonprofit organization may have
delegate structure to allow for the representation of groups as members.
The main goal for nonprofit organization is not achieve profit but to serve
the society.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.2 LAW BETWEEN PROFIT AND NON-PROFIT
ORGANIZATION
Profit Organizations:
Each organization need law to governed form all sides, profit organization
governed by laws established by the country for examples in Palestine
profit organizations governed by company law and investment law and so
on.
Nonprofit Organizations:
Most jurisdictions have laws governing the setting up, running, and
reporting requirements of these organizations, in many aspects they are
similar to business entities though there are often significant differences,
both profit and nonprofit must have board members, steering committee
members, or trustees who owe the organization.
Examples for laws on nonprofit organization (common wealth laws,
European Union nonprofit laws).
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.3 FINANCIAL STATEMENTS
A financial statement (or financial report) is a formal record of the
financial activities of a business, person, or other entity. Although, the term
financial statement is also used particularly by accountants.
For a business enterprise, all the relevant financial information, presented
in a structured manner and in a form easy to understand, are called the
financial statements. They typically include four basic financial statements,
accompanied by a management discussion and analysis:
o Statement of financial position (Balance Sheet) : also referred to as
statement of financial position or condition, reports on a
company's assets, liabilities, and Ownership equity at a given point in
time.
o Income Statement: also referred to as Profit and Loss statement (or a
"P&L"), reports on a company's income, expenses, and profits over a
period of time. Profit & Loss account provide information on the
operation of the enterprise. These include sale and the various
expenses incurred during the processing state.
o Statement of Retained Earnings: explains the changes in a company's
retained earnings over the reporting period.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
o Statement of Cash Flows: reports on a company's cash flow activities,
particularly its operating, investing and financing activities.
For large corporations, these statements are often complex and may
include an extensive set of notes to the financial statements and management
discussion and analysis. The notes typically describe each item on the
balance sheet, income statement and cash flow statement in further detail.
Notes to financial statements are considered an integral part of the financial
statements.
Purpose of financial statements by business entities
The objective of financial statements is to provide information about
the financial position, performance and changes in financial position of
an enterprise that is useful to a wide range of users in making economic
decisions. Financial statements should be understandable, relevant,
reliable and comparable. Reported assets, liabilities, equity, income and
expenses are directly related to an organization's financial position.
Financial statements are intended to be understandable by readers who
have a reasonable knowledge of business and economic activities and
accounting and who are willing to study the information diligently.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Financial statements may be used by users for different purposes
Owners and managers require financial statements to make important
business decisions that affect its continued operations. Financial
analysis is then performed on these statements to provide management
with a more detailed understanding of the figures. These statements are
also used as part of management's annual report to the stockholders.
Employees
also
need
these
reports
in
making collective
bargaining agreements (CBA) with the management, in the case of labor
unions or for individuals in discussing their compensation, promotion
and rankings.
Prospective investors make use of financial statements to assess the
viability of investing in a business. Financial analyses are often used by
investors and are prepared by professionals (financial analysts), thus
providing them with the basis for making investment decisions.
Financial institutions (banks and other lending companies) use them to
decide whether to grant a company with fresh working capital or extend
debt securities (such as a long-term bank loan or debentures) to finance
expansion and other significant expenditures.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Government entities (tax authorities) need financial statements to
ascertain the propriety and accuracy of taxes and other duties declared
and paid by a company.
Vendors who extend credit to a business require financial statements to
assess the creditworthiness of the business.
Media and the general public are also interested in financial
statements for a variety of reasons.
Financial statements of non-profit organizations:
The financial statements of non-profit organizations that publish
financial statements, such as charitable organizations and large voluntary
associations, tend to be simpler than those of for-profit corporations.
Often they consist of just a balance sheet and a "statement of activities"
(listing income and expenses) similar to the "Profit and Loss statement"
of a for-profit. Charitable organizations in the United States are required
to show their income and net assets (equity) in three categories:
Unrestricted (available for general use), Temporarily Restricted (to be
released after the donor's time or purpose restrictions have been met), and
Permanently Restricted (to be held perpetually, e.g., in an Endowment).
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.4 INTERNAL SYSTEM
Profit organization:
The board of director in the profit organization is part of share holders to
manage the organization and to hire general manager and his management
the main goal is to maximize wealth, they supported by their capital.
Board of
Director
General
Manager
Financial
Marketing
Production
Employees
Management
Management
Management
Affairs
o From the chart we show that the management and it's department
(financial, marketing, production and so on) seeking just to get profit
and to maximize wealth of share holders
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Nonprofit Organization:
In nonprofit organization the board of director don't seek to get profit but
to search and get donations from donors to service society from may sides
such as (economic, medical, educational and so on).
Board of
Director
Financial
Services
Management
Management
o In which the services management service society and provide helps
to society and financial management many financial affairs of the
organization (donations, expenditures and so on)
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.5 DOCUMENTS USED IN THE PROFIT AND NONPROFIT ORGANIZATION
Profit Organizations:
The Profit Organizations organize their documents depending on their needs to make work
easier and more clear than any time else.
Based on the type of profit organizations the documents issued, and the following table shows
the differences between the profit organizations documents:
Industrial
Trade
Service
Revenues
Sale invoice
Sale invoice
Service invoice
Purchases
Purchase invoice
Purchase invoice
Just expense invoice
Order , Bids …
Order … etc
Nonprofit Organizations:
Because nonprofit organizations in not for profit that mean it did not sell
goods or make a service to have money , it's goal is social to help citizens
and society to develop more and more, So it use another type of documents
which is Money vouchers. Money vouchers depend on cash basis that the
time we pay we take a receipt voucher and the time we take money we give
receipt voucher.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.6 ACCOUNTING STANDARDS BETWEEN PROFIT
AND NON-PROFIT ORGANIZATIONS
Because of the development of the businesses around the world and ending in the multinational
companies, the world needed to have international accounting standards to make it easy to
account to every company in this world.
International accounting standards putted before about 17 years but the board of international
accounting standards established in 2001 in London and its members are 14 around the world, the
international accounting standards edited by need and it developed to be suitable for the new
projects around the world.
Now we have 41 international accounting standards, it edited in 2010 to be easier to deal with
the international trade.
The international accounting standards contain and arrange every stage and type of accounting.
The International accounting standards contain the standards to deal with the profit and
nonprofit organizations and there are different type of standards used in this organizations some
of it is the same and the other is differ, for an example the profit organizations use accrual basis
or modified accrual basis as suitable for the king of business but in the nonprofit organizations
have to use cash basis because of the nature of this organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.7 AUDIT STANDARDS USED IN PROFIT AND NONPROFIT ORGANIZATIONS
There is no difference between audit standards used in profit and nonprofit
organizations because all of it depends on the auditor personality. And here
is the generally accepted audit standard:
General Standards
o The auditor must have adequate technical training and proficiency to
perform the audit.
o The auditor must maintain independence in mental attitude in all
matters related to the audit.
o The auditor must use due professional care during the performance of
the audit and the preparation of the report.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Standards of Field Work
o The auditor must adequately plan the work and must properly
supervise any assistants.
o The auditor must obtain a sufficient understanding of the entity and its
environment, including its internal control, to assess the risk of
material misstatement of the financial statements whether due to error
or fraud, and to design the nature, timing, and extent of further audit
procedures.
o The auditor must obtain sufficient appropriate audit evidence by
performing audit procedures to afford a reasonable basis for an
opinion regarding the financial statements under audit.
Standards of Reporting
o The auditor must state in the auditor's report whether the financial
statements are presented in accordance with generally accepted
accounting principles.
o The auditor must identify in the auditor's report those circumstances in
which such principles have not been consistently observed in the
current period in relation to the preceding period.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
o When the auditor determines that informative disclosures are not
reasonably adequate, the auditor must so state in the auditor's report.
o The auditor must either express an opinion regarding the financial
statements, taken as a whole, or state that an opinion cannot be
expressed, in the auditor's report. When the auditor cannot express an
overall opinion, the auditor should state the reasons therefore in the
auditor's report. In all cases where an auditor's name is associated with
financial statements, the auditor should clearly indicate the character
of the auditor's work, if any, and the degree of responsibility the
auditor is taking, in the auditor's report.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
3.8 AUDIT PROCEDURES USED ON PROFIT AND NONPROFIT ORGANIZATIONS
Audit procedures are summarized as follows with Differentiate between profit organization
procedures and nonprofit organization procedures in every step.
o
Understand the nature of the client in terms of legal entity and the type of activity and its
organizational structure and accounting systems and in the light of this information to the
auditor to accept the task of checking the operation or to apologize for that.
The Objective of the Profit Organizations Is To make profit but in the nonprofit it's goal is to
achieve social and economic development.
The Accounting System differs because of the nature of the accounts used.
o Understand the components of internal control systems available to the client and include
understanding environment systems of internal control mechanism (accounting systems
used), and procedures for internal control systems and know how to put into practice and
through which therefore determines the extent to which customer accounts to sift through it
If it turns out his indivisibility of the audit by the withdrawal from the task.
Every Type of Organizations has its internal control which can be suitable for the uses of
every type.
o
Evaluate the degree of risk in the systems of internal control, if it was agreed that the degree
of risk is high in that reveal internal control systems automatically material things which
showed what they are not in the closing statements are risks checking high or when the
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
degree of risk in auditing low must understand the control systems and identify things
strengthen the conviction that the auditor because the degree of risk is substandard.
The Degree of risk will not be differing by comparing profit and
nonprofit organization; it can be differing `by the nature of organization
projects and organization members.
o
Empirical Audit:
Auditors’ uses its assessment of internal control systems and his degree of risk of audit in
determining the nature of the audit, the timing of audit work and the time required for the audit
and the size of the sample.
In This Stage of Audit Procedures There IS No Any Different Can Be Happen between Profit and
Non-Profit Organization Because This Stage Depend On The auditor size of the work not on the
kind of it.
o
Evaluate the results of the audit
After the auditor finish his work he will assess the results of the work and decide if he can base
of his work result to give an opinion on the financial statement of the organization.
In This Stage we can say that the nature of the profit organizations will be
harder to understand and check.
o
Auditor's Report:
The Last Stage and procedure in the audit procedures is the auditor report
which in the auditor give his opinion about the fairness of the financial
statements of the organization.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
The Difference in this stage between profit and nonprofit organizations is
the financial statements itself, the financial statements of the profit
organizations are: Balance sheet, Profit And loss, Trade, Cash Flow...Etc.,
but these financial statements are not the same in nonprofit organization,
profit organization financial statements are: Statement Of Activity and
Special Purpose Statement.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Chapter 4
PREVIUOS STUDIES AND INTERVIEWS
WITH THE AUDITORS
4.1 Previous Studies
4.2 Interviews with auditors
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
4.1 PREVIOUS STUDIES
Statements on Auditing Standards by Mole Foryal:
Statements on Auditing Standards (SASs) are issued by the Auditing
Standards Board (ASB), the senior technical body of the AICPA
designated to issue pronouncements on auditing matters applicable to the
preparation and issuance of audit reports for nonissues. Rules 201 and 202
of the AICPA Code of Professional Conduct require an AICPA member
who performs an audit of a nonissue to comply with standards
promulgated by the ASB. The auditor should have sufficient knowledge
of the SASs to identify those that are applicable to his or her audit and
should be prepared to justify departures from the SASs.
Auditing Interpretations of SASs are interpretive publications pursuant
to AU section 150. Interpretive publications are recommendations on the
application of SASs in specific circumstances, including engagements for
entities in specialized industries. Interpretive publications are issued under
the authority of the ASB. The auditor should identify interpretive
publications applicable to his or her audit. If the auditor does not apply the
auditing guidance included in an applicable interpretive publication, the
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
auditor should be prepared to explain how he or she complied with the
SAS provisions addressed by such auditing guidance.
Auditors Expand Attack on Fraud by Margaret J. Tanney, CPA, is a
Shareholder with Alpern Rosenthal. She can be reached at
mtanney@alpern.com.
Numerous stories of financial statement fraud and alleged misconduct
have been covered in the media in the recent past including WorldCom,
Xerox, Enron, Adelphia and Tyco, to name a few. To implement
accounting reform and corporate accountability, the Congress passed and
the President signed the Sarbanes-Oxley Act of 2002. While the Act
applies to public companies, closely-held businesses and not-for-profit
organizations have also been affected by the recent frauds.
At about the same time as the Sarbanes-Oxley Act was passed, the
American Institute of Certified Public Accountants (AICPA) issued a
statement entitled Consideration of Fraud in a Financial Statement Audit
(Statement on Auditing Standards No. 99, SAS 99). The new set of rules is
just one component of the AICPA’s ongoing, comprehensive antifraud and
corporate responsibility program. SAS 99 applies to all financial statement
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
audits, regardless of the type of entity (public company, closely-held
company, not-for-profit, etc.) being audited.
While the new standard does not change the auditor’s responsibility for
fraud detection, it does require the auditor to take extra steps to uncover it.
SAS 99 will result in a substantial change in audit practice and more
effective audits as it requires the independent auditor to obtain a more indepth understanding of their clients, including its internal controls, to
identify the risks of material misstatements in the financial statements and
determine what the clients are doing to mitigate those risks. Accounting
firm clients, bankers, users of audited financial statements as well as the
general public have increasing expectations on the ability of the external
auditor to detect fraud.
Whether you are a private business owner, a controller or a board member
of a not-for-profit organization, this new audit standard will affect your
organization’s interaction with the audit team.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Benefits of the new standard
Implementing new audit procedures can be challenging and uncomfortable
at times. However, the new standard has some significant benefits for
organizations. Examples include:
o
Your auditors will discuss with management, owners and boards fraud
risk factors, both those related to fraudulent financial reporting (i.e.,
cooking the books) and misappropriation of assets (i.e., stealing)
o
Based upon the information your auditors gather as a result of the
expanded procedures called for in SAS 99, your auditors may:
evaluate whether the programs and controls your organization
currently has in place address fraud risks factors identified and make
recommendations to help your organization deter and detect fraud in
order to prevent financial losses from misappropriation of assets.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
How the new standard affects the audit procedures
The following are some of the effects an organization may notice
during the audit as the audit team applies the requirements of the new
standard:
o
Additional inquiries and communications by the audit team.
o
Additional emphasis on controls to prevent stealing, including
controls over cash disbursements.
o
Examination of journal entries and other adjustments.
o
Performance of a “retrospective review” of prior accounting estimates
made by management for biases.
o
Use of electronic testing approaches utilizing computer-assisted audit
techniques designed to “mine” the source data for unusual
relationships and trends.
o
Developing an understanding of the business rationale for significant,
unusual transactions including related party transactions and major
property sales and exchanges.
o
Introduction of an element of “surprise” in the scope, timing and
extent of procedures performed.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
In conclusion, SAS 99 will have an impact on the way audits are done for
private companies and non-profit organizations. However, CPAs are well
qualified and trained to dig through financial records and ferret out the type
of information needed to draw conclusions about the existence of fraud — a
valuable asset to any organization.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
4.2 Interviews with auditors
Next are seven questions asked to the auditors including a question for
every assumption and then the answers for every question by the auditors.
The Questions:
1- Is there any different between the mean of profit organization and
nonprofit organization.
2- Is there any different between accounting and accounting standards
for profit organizations and nonprofit organizations.
3- Is there any different between the audit standards used in profit and
nonprofit organization.
4- Is there any different between audit procedures used in audit on profit
and nonprofit organization.
5- Is there any different between documents used in the profit
organization and nonprofit organization.
6- Is there any different between financial statements for profit and
nonprofit organizations.
7- Is there any different between the low used in profit organizations and
nonprofit organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Answers by the sample of auditors
→
PHD Iskander Nashwan , The chief of the board of director for
the Palestinian society of certified public accountants.
1.
I think that the different can be in the goal of them, profit organization
goal is to make profit and benefits but non-profit organization goal is
to help people.
2.
Yes the different in accounts uses, example: revenues in the profit
happen by selling goods or services, but in nonprofit revenues can be
donations. In accounting standards the difference can be in the cash
base.
3.
No there is no difference in audit standards.
4.
Yes, audit procedures differ between the profit organizations and
nonprofit organization and I can say It differ between all the
organizations which make and which don't make profit.
5.
Documents used in every organization has to be different because of
the nature of everyone.
6.
Financial statements for profit is the income and balance sheet and
sometimes cash flows but in nonprofit is profit and loss account and
the change in the net assets and liabilities.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
7.
We have different lows for every organization in the country not just
for profit and nonprofit organizations.
→
1.
AUDITOR…
Of course there is a big difference between them, every kind of
business has a difference with others and when we talk about
difference between profit and nonprofit organizations we have to take
in consideration the goal and the components of these organizations,
profit organizations has its goal in making profit but nonprofit has its
goal to be helpful for the society.
2.
The difference can be mainly in the inventory, no inventory in the
nonprofit organization and the international standards talk about
inventory which has no relation with nonprofit organization.
3.
Because the audit standards that depend on the auditor I think there is
no difference.
4.
The audit procedures differ in the three stages planning,
implementation and in the resulting.
5.
Profit organization can be trade, industrial, row materiality and
service and it depend on the accrual basis but in the nonprofit
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
organization id depend on cash basis which make the documents
differ.
6.
Every organization has its financial statements.
7.
The profit organizations depending on the organizations low which
established in 1930 and it’s work until now, but there is a new low for
the nonprofit organizations which established in 2009.
→
1.
AUDITOR…
Profit organization is an organization that going to make profit and to
decline unemployment but nonprofit organization can't be profit
organizations.
2.
When we talk about organizations we have to take in our
consideration that every kind of businesses have a different with other
organizations not just profit organizations and nonprofit organizations.
The profit and nonprofit organization depending on many same
international standards for accounting and differ in some.
3.
I don't think that there is any relation make different between audit
standards in the profit and nonprofit organizations.
4.
The audit procedures different between all kinds of companies which
are profit so it will be different with the nonprofit organization.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
5.
Documents differ specially in nonprofit organizations because its
documents depend on the low in the country it has its activities in so
the documents differ.
6.
The name of financial statements maybe the same but what it contain
is the difference.
7.
Every organization has its Palestinian low and the same thing is for
profit and nonprofit organizations.
→
1.
AUDITOR…
Every kind of these organizations has its definition, profit
organization is organization that has its work maybe industrial, service
or trade and nonprofit organization work in help boor people, making
projects to decline unemployment and so on.
2.
Yes in profit organization there is trade or service to make profit but
in the nonprofit the service is not to make profit so the accounting will
be different. International accounting standards contain the standards
used to account for profit and nonprofit and maybe the difference can
just be in the cash base use to account for them.
3.
The audit standards don't make any difference in these two types of
organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
4.
The three stages of audit procedures can be different because planning
in profit organizations is to make profit and in nonprofit is to help
society, so the supplier will different so the procedure on audit on it
will differ.
5.
The main different can be in the nature of every organization, profit
make profit so there is sales invoices and service invoices but
nonprofit it’s name is no profit so it just make expenses which in the
money voucher.
6.
In profit organization there are many statements like profit loss,
balance sheet and cash flow. Nonprofit organization has profit and
loss and has change in net assets.
7.
Of course the different lows for profit organizations and nonprofit
organizations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
→
1.
AUDITOR…
Yes there is a difference and it's a big difference so clear and so easy
to tell about.
2.
Yes, and an example is when you talk about capital we can't make an
entry which contain capital because there is no capital. International
accounting standards clear the difference in accounting for every type
of organizations.
3.
I think that there is no difference.
4.
The procedures differ in all its aspects.
5.
Of course the documents different.
6.
Financial statements used in profit and nonprofit organizations differ
because of the nature of this organizations, profit organizations
contain capital but there is no capital in nonprofit organizations there
is surplus or deficit on net assets and liabilities.
7.
Yes, every organization has its low.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
→
1.
AUDITOR…
Oh, yeah the difference can be mainly in the goal of every type of
these organizations.
2.
For most people the accounting for profit and nonprofit organization
is the same but it isn't, revenues in profit organization made by sell but
in nonprofit made by receiving donations and for another example
accounting for debtors and creditors, there are big different between
the debtors and creditors for such profit and nonprofit organizations.
3.
The difference can be in accounting standards but in audit standards
there is no difference.
4.
I Think the Stages In every Procedure which differs but the mail
procedures didn’t differ.
5.
Profit organization use purchases, orders and sales invoices but
nonprofit organization use money vouchers for purchase payment
voucher and for receipt use receipt voucher.
6.
The financial statements for profit organizations are income
statement, trade, balance sheet and cash flow. But in nonprofit
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
organizations there are profit and loss account and change in net
assets and liabilities.
7.
Profit organizations has a low work with in Gaza applied in 1930 and
it work until now, and nonprofit organizations has a low applied in
2009.
→
1.
AUDITOR…
Maybe the different is in the objective of every organization, profit
organization objective is to make the profit, the money, but nonprofit
objective is to help people by many ways.
2.
On the one hand, accounting for these organizations differs because of
the difference of the mean, the goal and the projects of every
organization. And on the other hand there are some international
accountings standards are the same in these organizations and there
are some are not the same.
3.
The standards of audit talk about the general rules to audit and these
rules can't be differing between all kinds of organization.
4.
The audit procedures differ between accounting on profit and on
nonprofit organizations.
5.
The nature of every organization make the documents differ.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
6.
I think there is big different in statements used for profit and nonprofit
organizations, profit organization search for profit and the statements
used explain its profit like income statement and also it explain the
shape of his position if he has liabilities or how much is his capital as
in balance sheet. But the financial statements for nonprofit explain the
revenues and where is it gone like in the profit and loss account, so it
differ.
7.
Yes there is low for profit organizations and low for nonprofit
organization.
→
1.
AUDITOR…
Profit organizations are a business which it's job to create money and
nonprofit is an organization that make projects to develop the country.
2.
Accounting for profit organization depending on the modified accrual
base but accounting for nonprofit organization depending on the cash
base, so accounting for profit organization differ with accounting for
nonprofit organization and by the same thing there are some of the
international accounting standards with is the same and others differ.
3.
No there is no difference; you know the audit standards depend on the
auditor himself and on the work field.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
4.
Every procedure in audit procedures has its nature which differ
between profit and nonprofit.
5.
Profit organization use accrual basis and nonprofit use cash basis and
every base have its documents.
6.
Many people think that the financial statements for the nonprofit
account stopped on the profit and loss account or on the change in net
assets and liabilities, but that’s wrong because now we have special
purpose statements for activities and projects like activity statement.
But from many years there is no mainly change in the financial
statements for the profit organizations which are Income statement,
balance sheet and cash flow.
7.
The main effective differences which make the low differ is the base
that every organization depend on.
→
1.
AUDITOR…
Many differences, first different is in the internal system, second in
the goal, third in the documents used, forth is in the nature of the
work.
2.
Yes accounting is different for the organizations, differ because they
differ in mean, documents, statements, objectives , differ in
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
everything so of course the accounting will differ and of course it will
differ in the international accounting standards because the accounting
itself differ.
3.
I don't see any different between these standards among these
organizations.
4.
Because the first audit procedure is planning and its differ between
profit and nonprofit so the next procedures has to be differ because its
depending on the planning which is implementation and resulting.
5.
The low use in the country for every organization element the
documents to use specially in the nonprofit organization.
6.
Profit organizations have its financial statements and the nonprofit
organizations have its financial statements.
7.
Yes there is a different low.
→
1.
AUDITOR…
Nonprofit organization established by persons who want to improve
the society by many projects such as food baskets, support boor
families, help students… etc., but profit organization has many kinds
such as industrial, trade, service and all these profit organizations has
the goal to make profit.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
2.
The difference mainly is in the cash base maybe, and so on in the
international accounting standards but international accounting
standards some of it are the same like exchange foreign currency.
3.
There is no difference because audit standards can be as a general
rules to audit and not a specific rule.
4.
The audit procedures differ in all its aspects.
5.
Yes it differs between these different kinds of organization.
6.
I think that the financial statements for profit organizations are income
statement and balance sheet, but for nonprofit organizations there are
profit and loss statement and change in net assets and liabilities
statement.
7.
The low for profit organization is the corporations but for nonprofit is
the low for social associations.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Chapter 5
Results and
Recommendations
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Through our Interviews with the auditors, illustrated that our assumptions
improved as shown follows:
1- There is a different between the mean of profit organization and
nonprofit organization.
o
The entire sample agreed that there is a difference between the mean
of profit organization and nonprofit organization.
2- There is a different between accounting for profit organizations and
nonprofit organizations.
o
Through the standards used and the procedures of book keeping for
each organization.
3- There is a difference between the accounting standards used in profit
and nonprofit organization.
o
The entire sample agreed that there is a difference between accounting
standards for profit and nonprofit organization.
4- There is no any difference between the audit standards used in profit
and nonprofit organization.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
o
All The Sample agreed that there is no difference between the
auditing standards used in profit and nonprofit organization because
the auditing standards depend on the auditor his self.
5- There is a difference between audit procedures used in audit on profit
and nonprofit organization.
o
All the sample agreed that there is a difference between all stages in
the audit procedures.
6- There is a difference between documents used in the profit
organization and nonprofit organization.
o
All The Auditors in the sample agreed that there is a difference
between documents used in the profit and nonprofit organization.
7- There is a different between financial statements for profit and
nonprofit organizations.
o
The entire sample agreed with the differences in the financial
statements used in the two types of organizations.
8- There is a difference between the law used in profit organizations and
nonprofit organizations.
o
The entire sample agreed that every organization has its law.
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Comparative Study Between Audit On Profit Organizations And Audit On Non-profit Organizations
Recommendations:
I.
We recommend the creation of a Palestinian law for profit
corporations and applied to suit the needs of the Palestinian
companies especially in this volatile economy.
II.
We recommend the creation of periodical conference for auditors
to discuss the latest developments in the auditing field.
III.
We recommend the expanding the scope of the Palestinian
auditing standards to include more and more the non-profit
companies.
IV.
Re-assess the ability of the auditor in the Gaza Strip on the work
of the auditing profession.
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References:
1. www.Acc4arab.com ‫موقع المحاسبون العرب‬
2.
www.auditnet.org
3. Wikipedia The Free encyclopedia
4. www.pacpa.ps
5.
http://www.met.gov.ps/DesktopDefault.aspx?lng=2 ‫موقع وزارة االقتصاد الفلسطينية‬
6.
http://sqarra.wordpress.com ‫مدونة صالح القرا‬
7.
www.acfgaza.co.cc
8.
www.arabo.com ‫موقع جمعية المحاسبون والمراجعون العرب‬
9.
www.accountingeducation.com
‫منتدى المحاسب الفلسطيني‬
10. www.pwc.com
11.www.deloitte.com
12. ‫ عمرو وهبة وآخرون‬،‫علم تدقيق الحسابات‬
13. International Accounting Standers (IAS), presentation of financial
statements.
63