Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Helpful comments from 2017 CalCPA Not-for-profit conference, part 1

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Image courtesy of Adobe Stock.

Here are a few of the comments from the May 24, 2017 Not-for-profit conference presented by California Society of CPAs that I thought would be of interest to others in the nonprofit community. Since all comments are the opinion of the speaker, neither their name nor organization will be mentioned. The ideas mentioned can stand or fall on their own.

This is the first of two posts. The next discussion will address changes in financial statement presentation outlined in ASU 2016-14. In this post: tax, revenue recognition, and single audit.

(Cross-posted from my other blog, Nonprofit Update.)

Tax update:

  • It might just be possible that filing a form 1023 or 1023-EZ is so easy that people can get exempt status for an organization without knowing the requirements to properly operate a charity and maintain exempt status. In examinations to follow-up on exempt status, the IRS is finding a lot of charities are out of compliance.
  • One of several focuses of the IRS is filing of FBARs, those forms used to report overseas bank accounts. One ripple effect of chasing money laundering is the impact on charities who have overseas accounts. Even though there is minimal risk of those accounts being used for tax evasion the FBAR filing requirement still apply. As a reminder, the deadline for filing FBARs is now April 15 with a six-month extension available.

  • The IRS is concerned that having losses every year on 990-Ts hints there may not be a business purpose for the activity. There is also concern from the IRS there is unwarranted over-allocation of expenses to 990s in order to avoid paying UBIT.
  • With the change of administration there are ideas floating around in Washington looking at the huge endowments held by many universities. Speaker mentioned that some universities are pointing out a large portion of the endowment balances are purpose or time restricted.

Revenue recognition update:

  • Identifying performance obligations is going to be messy. Example cited is a big-name university with a successful national level sports team who signs a million-dollar deal to allow licensing of the school’s logo. Does that create a performance obligation that the University must keep its football or basketball team playing for the term of the contract?
  • My observation: if your brain doesn’t hurt as you think about Rev Rec, you either haven’t been paying attention or you are already an expert on the topic. For all the rest of us, that headache you feel should be motivation to do more study.
  • Another observation: the impact of revenue recognition is expected to be highly variable based on industry. Some areas of the economy will see a big impact and some industries will see minimal impact. I expect the same variable impact in the charity world. For example, churches with relatively few programs, such as a few youth retreats and a couple of special events each year, will see negligible impact. Colleges and especially universities will see much more of an impact.
  • Donated space is not a lease because an entity must pay consideration in order for a transaction to be considered a lease.

Single audit update:

  • The AICPA AICPA pulled in 87 single audit engagements for oversight – 48% were nonconforming. Keep in mind that is CPA peer reviewers looking at the workpapers.  (My observation:  Ouch. That might be, maybe, perhaps, why the federal audit community is not particularly happy with audit quality.)
  • The AICPA studied the results. The speaker highlighted two patterns regarding quality level observed by the AICPA.
    • The number of single audits performed by a firm had a correlation to quality. The more single audit engagements in a firm, the better the quality.
    • Qualifications of the engagement partner was a key factor. Higher level of education on single audit issues, more years experience, and more engagements resulted in higher quality.
  • Audit guide for government audits was released this month.
  • An exposure draft for update to the Yellow Book was released on April 6, 2017. One of many items changed is to require four hours of continuing education on the Yellow Book update before working on a YB engagement. This will be a one time requirement whenever there is an update. Again, those hours must be completed before working on an engagement.
  • Speaker highlighted that identifying non-attest services and documenting skills, knowledge, and experience (SKE) is a prerequisite to the engagement. Then safeguards can be put in place.
  • Two documentation issues highlighted:
    • Document the controls in place (walk-through) and then assess internal control.
    • In a dual-purpose test, be sure to identify which steps are for compliance and which for testing of controls.

Written by Jim Ulvog

May 30, 2017, 7:46 am at 7:46 am

Posted in Accounting, Audits

Tagged with ,

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