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EisnerAmper Blog

Not-for-Profit Trends and Tips Blog

CharitiesNYS.com Updated for the Nonprofit Revitalization Act

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By: Brian Collins, CPA

Collins_BrianThe CharitiesNYS.com website has been updated for the Nonprofit Revitalization Act, which brought changes to New York State’s not-for-profit sector laws.  The Nonprofit Revitalization Act of 2013 becomes effective on July 1, 2014. The Act changes the filing requirements and filing fees mandated by Article 7-A of the Executive Law, exempting smaller organizations from the requirement to file a CPA's audit or review report and financial statements.  Click here for guidance and provisions of the Nonprofit Revitalization Act of 2013 found on the CharitiesNYS.com website.

For more information regarding the Nonprofit Revitalization Act please view the  previous blog post; “Government Watch: New York State’s New Nonprofit Revitalization Act”.

FASB: Nonprofit Advisory Committee

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April 4, 2014

By Jenifer Keiser, CPA

Keiser, JenniferWith the establishment of the Nonprofit Advisory Committee (the “NAC”) a few years ago, the Financial Accounting Standards Board (“FASB”) continues to examine financial reporting and its relevance to the not-for-profit marketplace.  Currently, there are a few projects on the agenda that, if seen to fruition, would have a fairly significant impact on the financial reporting practices in the not-for-profit sector.

FASB is currently evaluating whether to require all not-for-profits (“NPOs”) to reflect an operating measure in the statement of activities.  In addition, FASB is re-examining the current requirement for voluntary health and welfare organizations to present a statement of functional expenses, with an eye towards making the reporting of these expenses a requirement for all NPOs, although not necessarily in a proscribed format.

As the definition of what constitutes an “investment expense” has become less uniform, FASB is also considering a requirement to reflect these expenses net on the statement of activities, with a definition in the notes as to the components of these expenses.

The most dramatic project in terms of reporting impact remains FASB’s review of the concept of donor restrictions, and the consideration of collapsing the “permanently restricted” and “temporarily restricted” categories into a single “donor-restricted” category in the financial statements.

These projects are in early stages of discussion and much remains before they would be required in the marketplace.  However, it is not too early to begin conversations about the impact if adopted.

Changes and Developments to GuideStar

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March 31, 2014

By Timothy Schroeder, CPA

Schroeder, TimIn March 2014 GuideStar announced a new initiative called GuideStar Exchange, which will allow organizations to access their individual GuideStar profiles and update the “People and Governance” section with selected board leadership practice information free of charge.  This information includes board orientation and education, CEO oversight, ethics and transparency, board composition and board performance.  The information is expected to be available to the public in the next few months.  The goal is to enable GuideStar users to have a deeper understanding of the governance structure of these organizations in a “one stop shopping” manner, thereby promoting greater transparency of not just the financial information of a selected organization, but also its practices as well.  This program will also allow organizations to update missing or incorrect information, such as correcting an address or other data.

Obviously while this process will be free to the organizations themselves, GuideStar maintains a tiered fee structure for its users that remains unchanged. 

What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization Part 3 of 3

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March 27, 2014

By Brian Collins, CPA

Collins_BrianOne final item that should be communicated at the end of your not-for-profit organization’s annual audit by your auditor are the matters related to an entity’s internal control over financial reporting identified in an audit of financial statements.

The Communication of Internal Control Related Matters Identified in an Audit (SAS 115) letter documents the deficiencies identified during the audit that are considered significant deficiencies or material weaknesses within the organizations internal controls.  A deficiency in internal control exists when the design or operation of an internal control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis.  These deficiencies should be communicated, in writing, to management and those charged with governance as a part the closing meeting for the audit.

The organization’s management may wish to prepare a written response to the auditor's communication regarding significant deficiencies or material weaknesses identified during the audit. Such management communications may include a description of corrective actions taken by the organization, the organization's plans to implement new controls, or a statement indicating that management believes the cost of correcting a significant deficiency or material weakness would exceed the benefits of doing so.

Communication of Internal Control Related Matters Identified in an Audit allows the organization’s board of directors and management to better understand their organization’s internal control weaknesses so management is aware of the risks of each and determine how to address them.  It is important for the organization’s board of directors and management to remember that their auditor is their independent source of information and can help them with guidance of any internal control weaknesses identified.

As a conclusion to this blog series, although your auditor should be communicating with you, you should also be communicating with your auditor.  If there is something you don’t understand in the audit financial statements or one of the communication letters you receive, be sure to bring it to the auditor’s attention.  Effective two-way communication is always the best form of communication.

What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization? Part 2 of 3

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March 20, 2014

By Brian Collins, CPA

Collins_BrianAt the end of your not-for-profit organization’s annual audit, once the financial statements and the auditor’s report have been prepared, signed, and delivered to those charged with governance, your auditor should reach out to those charged with governance to communicate specific items related to the audit of the financial statements.  The term ‘those charged with governance’ refers to the person(s) with responsibility for overseeing the strategic direction of the organization and obligations related to the accountability of the organization.  This includes overseeing the financial reporting process.  For many not-for-profit organizations, the term those charged with governance refers to the board of directors or the audit committee.

Statements on Auditing Standards establish standards and provide guidance on the auditor’s communication with those charged with governance in relation to an audit of financial statements.  The Auditor’s Communication With Those Charged With Governance (SAS 114) states that the principal purposes of communication with those charged with governance are to:

  • Communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, and an overview of the scope and timing of the audit.
  • Provide those charged with governance with timely observations arising from the audit that are relevant to their responsibilities in overseeing the financial reporting process.

The following is a list of topics that should be communicated to those charged with governance:

  • The auditor's responsibilities under generally accepted auditing standards
  • An overview of the planned scope and timing of the audit
  • Significant findings from the audit
    • Organization’s Significant Accounting Practices (policies, estimates, disclosures)
    • Difficulties Encountered in Performing the Audit
    • Corrected Adjustments and Uncorrected Adjustments
    • Disagreements with Management
    • Fraud and Noncompliance with Laws and Regulations
    • Representations Requested from Management
    • Management’s Consultation with Other Accountants
    • Other Significant Findings or Issues 

The auditor should communicate with those charged with governance orally or in writing on a timely basis to enable those charged with governance to take appropriate action for any significant findings.  When matters are communicated orally, by conversation or presentation, the organization should document them.  Documentation of oral communication may include a copy of minutes prepared by the organization.  When matters have been communicated in writing, the organization should retain a copy of the communication.

In the third and final installment of “What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization?” we will review the Communication of Internal Control Related Matters Identified in an Audit (SAS 115).

What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization? Part 1 of 3

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March 12, 2014

Collins_BrianBy Brian Collins, CPA

The auditor and a not-for-profit organization’s board of directors and management should be in communication before, during, and after fieldwork to make sure the audit progresses smoothly from beginning to end.  In this three-part blog series I will discuss the information an auditor should be communicating to an organization’s board of directors and management.  This first blog post will focus on the communication prior to the start of the audit and the second and final blog posts will concentrate on the communication at the end of the audit.

An audit covers the entire fiscal year of an organization, which is why the auditor should be in touch with the organization several times during the year in order to say up-to-date with the not-for-profit’s activities.  Meetings held during the year can be done in person, by telephone, or by providing the auditor with the organization’s board minutes and internal financial statements for their review.  An auditor should be there to help address any concerns or issues the not-for-profit may have throughout the year, not only during the audit.

Prior to the start of the not-for-profit’s year-end audit, a pre-audit meeting should be set up between the auditor and those charged with governance to discuss the audit and tax compliance services.  Upon the conclusion of the pre-audit meeting, the initial audit communication an organization should receive from the auditor is an engagement letter, which establishes in writing the understanding of the terms of the audit engagement with the board of directors and management.  The engagement letter principally addresses the scope of the audit engagement, the terms of compensation for the auditor, timing of services, and due dates of deliverables.

One of the main ways to have an effective and efficient audit is to properly focus on what is needed early in the planning stage. This can be accomplished through an arrangement or request letter.  This letter is sent from the auditor to the organization before the fieldwork for the audit begins.  The letter should be a detailed list of schedules and documents that need to be prepared and given to the auditor, including bank statements, trial balance, board minutes, and other information.  The requested items should be available before the on-site audit fieldwork starts.

In addition to the letters discussed above, the auditor and the organization should have a meeting during the planning phase to develop a mutual understanding of expectations from both parties.  At this meeting, the auditor should provide the board of directors and management with an overview of the overall audit strategy, including the timing of the audit.  However, do not expect the auditor to discuss specific details of the audit procedures in order not to compromise the effectives of the audit.  For example, discussing the nature and timing of detailed audit procedures with management may make the audit procedures too predictable.  The communication of the overview and the overall audit strategy is typically done verbally to the board of directors and management prior to the start of the audit.

In the second installment of “What Should Your Auditor Be Communicating to You and Your Not-for-Profit Organization?” we will review The Auditor’s Communication With Those Charged With Governance (SAS 114).

The New 2013 Data Collection Form and Federal Audit Clearinghouse Web Site

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February 14, 2014

Collins_BrianBy Brian Collins, CPA 

After many months of deliberation and due process, the Office of Management and Budget has released the 2013 Data Collection Form.  It is applicable for audit periods ending in 2013, 2014, and 2015.  Additionally, the Federal Audit Clearinghouse has launched a new Internet Data Entry System that will bring other changes to the submission process.  It is important for both auditees and auditors to understand the changes to help ensure a smooth transition and implementation.  To assist you with gaining this understanding, we are providing you with access to a question and answer (Q&A) document. titled Questions and Answers for Auditees: The New 2013 Data Collection Form and Federal Audit Clearinghouse (FAC) Web Site, that we hope will be of assistance to you.

Further instructions for data entry into the Federal Audit Clearinghouse are located here.
 

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