Transparency In Ministry

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

In our two previous posts, we have discussed the different financial statement presentations, GAAP, cash basis and now we will define modified cash basis of reporting.

There must be "substantial support" for reporting under the modified cash basis. Ordinarily, a modification would have substantial support if the method is equivalent to the accrual basis of accounting for the particular item and if the method is not illogical. The modified cash basis is more common than the "pure" cash basis.

Examples include the need to report property and equipment purchased as assets; accumulated depreciation; material amounts of inventory purchased for cash as assets; liabilities arising from the receipt of borrowed cash; and employee withholding taxes not deposited with the IRS.

See our next post that discusses how to disclose these modifications.

Posted by David DuBois

So what defines a designated fund/contribution? Shouldn't accounting be simple? Isn't it basic math (one plus one equals two)?

The difficulty lies in the terminology or meaning of words. The manner in which the word designated is used can cause significant differences in how churches account for a transaction.

Not all designated funds are accounted for as restricted funds. Accounting standards state only third party designated funds are to be accounted for as restricted funds. Internally designated funds, such as board-designated funds, are accounted for as unrestricted funds.

Small non-public entities prepare financial statements for a variety of reasons. Usually, it is done at the request of third parties (banks, potential investors or other interested parties) or simply for internal monitoring purposes. The basis of accounting that an entity uses to prepare its financial statements generally is determined by the needs of the users.

A large number of companies, including public entities (SEC registered), prepare financial statements in accordance with Generally Accepted Accounting Principles (GAAP). GAAP basis statements require that entities comply with a large amount of accounting rules and standards resulting in management time ensuring compliance. When these entities consider the cost benefit of such compliance compared to the needs of the users, they have the option to prepare their financial statements on another basis, commonly referred to as OCBOA (Other Comprehensive Basis of Accounting). Typical examples of OCBOA include Cash Basis, Modified Cash Basis, Tax Basis and Regulatory Basis of accounting.

See our next post, as we discuss the differences between the cash and modified cash basis of accounting for non-profit entities.

Straight from FASB's Norwalk Connecticut Headquarters:

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) approved a revised definition of what constitutes an asset on October 22, 2007, the first day of their two-day joint meeting.

Following a discussion as to how to replace the word “control” that had been used to link an entity and an economic resource in the prior definition of asset, the Boards agreed to define an asset as a present economic resource, which, through an enforceable right or other means, an entity has access or can limit the access of others.

This revision replaced the word "control" that had been used to link an entity and an economic resource in the prior definition of an asset.

Churches are classified as a charitable organization under the IRS code. They are defined as a 501(c)(3) organization and they are not required to apply for an exemption, (Form 1023) with the IRS. However many churches voluntarily elect to apply for exemption.

Charitable organizations or non-profit organizations range in sizes from small local entities to large international organizations. They encompass almost every activity imaginable – including health and welfare (i.e., American Red Cross), religion (i.e., churches and ministries), education (i.e., private schools and colleges/universities), research, social activities (i.e., private golf clubs/courses) and professional activities (i.e., AICPA).

The Financial Accounting Standards Board (FASB) defined nonprofit organizations by contrasting them to for-profit entities. Specifically, it defines nonprofit organizations as entities that possess the following characteristics not typically found in business enterprises:

a. They receive contributions of significant resources from resource providers who do not expect a commensurate or proportionate monetary return.

b. They operate for purposes other than to make a profit.

c. There is an absence of ownership interests like those of business enterprises.

Over the next series of posts, we will discuss contributions and the general requirements that are imposed by the IRS. We will also discuss the FASB requirements for reporting contributions in the financial statements.

Hot of the AICPA wireservice...

The AICPA’s Accounting and Review Services Committee has issued Statement on Standards for Accounting and Review Services (SSARS) No. 15, Elimination of Certain References to Statements on Auditing Standards and Incorporation of Appropriate Guidance Into Statements on Standards for Accounting and Review Services (Product No. 060653).

The Accounting and Review Services Committee (ARSC) is aware that, in many instances, SSARSs referenced the practitioner to Statements on Auditing Standards. The ARSC is further aware that, for many practitioners, compilations and reviews represent the highest level of service performed and, therefore, those practitioners may be unfamiliar with the auditing literature. SSARS 15 eliminates certain references to the auditing literature from the SSARSs and, where deemed appropriate, incorporates guidance similar to that originally referenced.

To obtain copies of SSARS 15, contact the AICPA Store.

Questions about attestation rules/regulations, contact me. What are attestation services? Contact me or post a comment.

Straight from the AICPA Not-for-Profit Industry Conference, held in Washington, DC:

Impaired Independence - defined as "auditing what I prepare".

"I can't audit...what I prepare" - Nancy Shelmon, Partner-in-Charge of the West Region's NPO/HE Services Group of PricewaterhouseCoopers, said during the In the Management vs Auditor Responsibilities - Whose Financial Statements are They Anyway? session. Nancy discussed the new risk assessments/auditor responsibilities for financial statement audits.

Independence continues to be a hot button for the AICPA and continues to be "refined" for auditors.

Auditors cannot audit financial statements they prepare, including significant working papers or supporting schedules or they become impaired. I know...you think some auditors are impaired anyway...ha!

The line of independence has been drawn! We cannot audit what we prepare!

Churches/Ministries must have an individual who can and will take responsibility for the preparation of the financial statements. Need help in preparing your financial statements or preparing for your audit? Contact me.