I’m studying for my Accounting class and need an explanation.
**reply to post below not just yes or no give thoughout answer**
I believe that it is not a CPA firms’ responsibility to perform audits of charitable organizations for reduced or lower than normal audits fees. While it would be a nice thing to do, CPA firms are in the business to make a profit, therefore if they want to volunteer their time then that is their choice, but ultimately, they do not have a responsibility to do so. Similarly, it is not a requirement for charitable organizations to have an audit completed except in some states, therefore it is up to the non-profit to decide if they want one completed.
If auditors performed the audit for reduced fees, then there are definitely some implications that could come with the decision. A good point to make is that the charitable organization would be saving money that they could put towards other aspects of the organization like fundraising or events. However, the audit effort could be negatively affected as the auditors could put less time and effort into the work that needs to be done. Instead of performing all the necessary steps, they could cut corners and take short cuts since they know they are not getting paid as much as normal. While that would be ethically wrong, I would not put it past auditors as we have seen how some have acted in the past.
Audit fees are of course one of the benefits for accounting firms when auditing any business, but an accounting firm that audits a charity could be viewed more highly by the public. Many people value companies that hold service as a high value within the company, so if an audit firm did reduce their fees for a charity then the public could approve of their philanthropic efforts. Also, since it is not mandatory for a charity to have an audit done, it is an area of business that accounting firms could gain more money from if audits became mandatory everywhere. I think that performing an audit for a not-for-profit organization can be risky depending on the size of the organization and if fraud has continually been occurring then it can be difficult to pinpoint the fraud and stop it since it will be the “norm.” Some people may think that there is less risk in the business of a non-profit, but I think that just like any business, if there is money flowing in and out then there is room for fraud and embezzlement to take place.