Transparency In Ministry

In our previous posts we have discussed the new risk standards promulgated by the AICPA affecting audits for years ending beginning on or after 12/15/06. In post #4 we briefly discussed SAS 106 and 107. Now we will discuss SAS 108 and 109.

SAS 108 –requires a more detailed audit plan than what was previously accepted. This standard will require more interaction with clients and it may take the auditor longer to generate the plan.

SAS 109 – requires the auditor to perform “risk assessment procedures” to gather information and gain an understanding of the client and their environment. This can be performed in conjunction with documentational questionnaires, client interviews, and “brainstorming” sessions amongst the auditors. This understanding will help the auditor obtain the evidence necessary to support the auditor’s assessment of risk.

Control Risk Definition: Control Risk (CR) is the level of risk that a misstatement will occur and not be detected by the entity's internal controls.

IR (inherent risk - defined in a previous post) x CR (defined above) = Risk of Material Misstatement

Posted by - Anthony Miller

Since the beginning of the year, we have been discussing the general requirements for reporting contributions. In this post we will discuss when to record a contribution.

When is the unconditional transfer considered a contribution? When does the church record a contribution? The timing or delivery of the unconditional transfer is very important in determining how/when to record a contribution.

Let’s review the following:
a. Checks that are mailed to a church are considered “delivered” on the date the donor mails it or the date of postmark.

b. Checks that are delivered in person are considered a contribution at the time of delivery. Checks that are postdated are basically considered to be a promise to pay and should be treated like a promissory note. The church should retain the check until the date and then deposit the funds and record the contribution.

c. Contributions charged on the donor’s bank credit card are recorded in the year the charge is made.

d. If an individual utilizes a pay-by-phone account, the date the financial institution pays the amount is the date of contribution.

e. If stock is donated to the church, the contribution is recognized when the properly endorsed certificate is mailed/delivered to the church or the church’s agent. However, if an individual gives a stock certificate to their agent or to the issuing corporation for transfer to the name of the church, the gift is not completed until the date the stock is transferred on the books of the corporation.

f. If an individual issues a promissory note to a church, it is not a contribution until the payments are made.

g. If an individual makes a contribution with borrowed funds, the contributions are recorded when received, regardless of when the loan is repaid.

h. If a contribution is a conditional gift that depends on a future act or event that may not take place, a contribution cannot be recognized unless there is only a negligible chance that the act or event will not take place.

Here’s an example: Individuals donate cash to a church to help build a new educational wing. The church needs $250,000 to build the wing. The church will refund the contribution if the $250,000 is not raised. The contribution is not recognized until the $250,000 has been raised.

Churches may recognize contributions when received, if the transfer is “unconditional”.

As you can see, it is important to determine when the Church receives the unconditional transfer. See our next post regarding the amount that can be deducted by the donor.

Posted by Floyd Langley & Kirk Vanderslice

Detection Risk (DR) is the risk the auditor will not detect a misstatement in the financial statements. Detection risk is a function of the effectiveness audit procedures.

Therefore:

RMM (defined previously) X DR = Audit Risk

The new auditing standards require certain communications to “those charged with governance”. These individuals are responsible for overseeing the strategic direction of the church or ministry. These same individuals have accountability for and to the entity, including the financial reporting process.

Those charged with governance may include a board of directors, a supervisory board, or trustees. Subgroups (such as an audit committee) may be charged with specific tasks to assist a governing body in meeting its responsibilities.

Has the tone been appropriately defined and refined by those charged with governance? See our tone at the top post.

Posted by Anthony Miller