Financial Statement Preparation
Dennison CPA, PC offers financial statement preparation (attest services) to local Churches and other Christian Ministries. Financial statement preparation includes Annual Audit, Review & Compilation.
When Should a Church Obtain CPA Prepared Financial Statements?
CPA prepared financial statements serve several purposes and provide a benefit to the ministry by providing leadership with the ability to demonstrate their commitment to financial accountability and transparency. Here are a few guidelines to use when determining what level of CPA prepared financial statements your church needs.
In the case of borrowing funds from a lender for building and other capital needs; church lenders typically require CPA compiled financial statements for loan amounts of $1MM and less, CPA reviewed financial statements for loan amounts of $1MM to $2.99MM and CPA audited financial statements for loan amounts of $3MM and higher.
I recommend that churches with annual revenues of $5MM and higher receive a CPA audit every year especially if there has been turnover in accounting staff positions and/or substantial financial growth. Churches with annual revenues of $1MM to $4.9MM should receive an annual CPA audit every 3 to 5 years with CPA reviewed financial statements in the off years. Ministries with annual revenues of $999K and under should have a review every other year with CPA compiled financial statements in the off year.
Description of Church CPA Prepared Financial Statements
Audit: an annual audit is the highest level of financial assurance that a Certified Public Accountant (CPA) can provide your ministry. The procedures utilized by your Church CPA include; substantive sampling of financial transactions to ensure accuracy, an in depth analysis of your organizations’ internal controls to determine whether or not the current organizational procedures will identify any financial inconsistencies. Lastly; the CPA will obtain confirmation from outside third parties as to relevant financial matters involving your ministry. Specific inquiries include communication with your current lender (s), banking institution, ministry attorney and any other necessary outside third parties.
An annual audit provides your ministry and any others who would be interested in the financial condition of your ministry with the highest level of confidence as to the accuracy of the financial statements presented for your ministry. Typically, medium to large ministries would be required to have annually audited financial statements due to loan covenants or other internal ministry leadership directives and is considered a “best practice” for churches and Christian ministries.
ECFA Audit Standards
Review: reviewed financial statements are the second level of financial statement attestation that a Certified Public Accountant (CPA) can provide your ministry. The procedures utilized by your Church CPA include inquiry of management and financial personnel of your ministry and analytical procedures.
Your Ministry CPA makes inquiries concerning such financial statement-related matters as accounting principles and practices, recordkeeping practices, accounting policies, actions of the board of directors, and changes in business activities. Then your Church CPA will apply analytical procedures designed to identify unusual items or trends in the financial statements that may need explanation. Essentially, a review is designed to see whether the financial statements “make sense” without applying audit-type tests.
Typically, small to medium ministries would be required to have annually audited financial statements due to loan covenants or other internal ministry leadership directives. Unlike an annual audit; a review can be performed on an interim period of time – meaning a partial year.
A financial statement compilation is a service to assist the management and leadership of a ministry in presenting its financial statements. This presentation involves no activities to obtain any assurance that there are no material modifications needed for the financial statements to be in conformity with the applicable accounting framework (such as GAAP or IFRS). Thus, a Ministry CPA engaged in a compilation does not use inquiries, analytical procedures, or review procedures, nor does he/she need to obtain an understanding of internal controls, or engage in other audit procedures. In short, compilation activities are not designed to provide any assurance regarding the information contained within the financial statements.
A financial statement compilation is the least expensive of the various forms of auditing services (the other two being a review and an audit), and so is preferred by those cost-sensitive ministries whose financial statement users are comfortable with this form of engagement. However, because there is no assurance that compiled financial statements fairly present the results and financial position of a business, a compilation is not preferred by lenders and creditors.
Under a compilation, church leadership and management takes responsibility for the preparation and presentation of the financial statements. The accountant providing the compilation services should have sufficient industry-level experience and knowledge of the client to compile the financial statements.
When completed, the accountant provides a written report that should accompany the compiled financial statements. This report states that the accountant has not audited or reviewed the financial statements, and therefore does not express an opinion or provide any assurance that the financial statements are in accordance with a financial reporting framework.
Evangelical Council of Financial Accountability Standard 3: Financial Oversight
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