Year- End Audit Preparation

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Year- End Audit Preparation

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Year- End Audit Preparation

  1. 1. Year-End Audit Preparation: Staying Organized All Year Program Meeting Center for Nonprofit Advancement, Washington, D.C. December 10, 2013 J. Scott Denlinger, CPA, Director CBIZ MHM, LLC
  2. 2. Overview • How to prepare for the year-end audit. • How to stay prepared throughout the year. • Make your monthly financial statements more reliable. • DON’T HESITATE TO ASK QUESTIONS!
  3. 3. Audit Process • • • • Planning Stage Fieldwork Reporting Post-fieldwork
  4. 4. Planning Stage • Meetings with Management • Review preliminary financial statements • Review accounting system/internal controls • Walkthroughs
  5. 5. Internal Controls • Document and update your accounting system • Checks and balances – Misstatement of financial statements – Misappropriation of assets • Segregation of duties • Issues for small organizations • Balancing control with efficiency
  6. 6. Planning for Fieldwork • • • • • • Risk assessment Materiality Selection of accounts Unpredictable procedures Fraud testing procedures PBC listing
  7. 7. Fieldwork • Testing account balances – Substantive testing – Analytical procedures • Audit adjustments • Audit findings • Don’t be afraid to ask, “Why?”
  8. 8. Accrual vs. Cash Basis Accounting • Cash – recognizing revenues as you receive them and expenses as you pay them • Accrual – recognizing revenues as you earn them and expenses as you incur them rather than at the time of cash flow
  9. 9. Statement of Financial Position • Nonprofit equivalent of the Balance Sheet • Tells you what you own (assets), what you owe (liability) and what you have leftover (net assets).
  10. 10. Cash • • • • Bank reconciliations Bank statements/confirmations Write off old outstanding checks Do you still owe that money –Should it become a payable? • Review on a monthly basis
  11. 11. Receivables • Should always agree to an aging • Always know who owes • Are the balances collectible? – Just because you’re owed the money doesn’t always mean it will be collected – Allowance for bad debts (donor’s intent may not equal donor’s ability) • Other issues: – Split out long-term receivables – Record at present value
  12. 12. • Promises to Give (Current) – ABC, Inc. (Year 1) – DEF Foundation (Year 1) – Joe and Mary Johnson – XYZ Corp. – Don Smith » Subtotal $100,000 100,000 70,000 10,000 7,987 287,987 – Allowance for uncollectable promises (10,000) »Balance $277,987
  13. 13. Prepaid Expenses • Prepayments for future goods or services (meeting space deposits, etc.) • Useful in matching revenues with expenses (conferences, trade shows, etc.) • Key issues: – Don’t forget to expense them later – Don’t worry about the small stuff
  14. 14. • Prepaid Expenses – Deposit – meeting facility $ 20,000 – Insurance ($30,000/12mos. x 6mos.) 15,000 – Maintenance contract ($20,000/12mos. X 6mos. 10,000 – Health Insurance premium 14,379 »Balance $ 59,379
  15. 15. Property and Equipment • Key Issues: – Establish a capitalization policy ($500?, $1,000?, more?) – Maintain fixed asset listing on Excel or other program – Use good descriptions – could save you personal property taxes – Keep depreciation simple – straight-line
  16. 16. • Fixed Asset Listing Description Date Laptop Exec. Dir. 6/21/20XX Conf Room Table 5/23/20XX Hi Speed Printer 2/29/20XX Totals Life 5 Yrs. 7 Yrs. 5 Yrs. Cost $20,000 15,000 6,137 A/D ($8,000) (12,000) ( 5,844) Net $12,000 3,000 293 $41,137 (25,844) $15,293
  17. 17. Investments • Key Issues: –Need an investment policy –Don’t forget unrealized gains and losses – especially in current economy! –Review performance monthly
  18. 18. • Investments Beginning balance, cost Interest Dividends Purchases Sales Realized gains/losses Ending balance, cost Unrealized gains/losses Ending balance, market $900,822 5,521 6,023 100,000 (30,000) 8,202 $990,568 (8,798) $981,770
  19. 19. FAS 157 • • • • • Level I Level II Level III Only refers to valuation Doesn’t mean “better or worse”
  20. 20. Other Assets • Deposits –Recording can help serve as a reminder
  21. 21. Accounts Payable/Accrued Expenses • • • • Should always agree to an aging Keep on top of this Know what you owe Consider recording estimates if you don’t have the invoice yet (contractors, large expense reports, etc.) • Avoid surprises
  22. 22. • Accounts Payable – ABC Contractors – Anderson Consulting – Smith, Johnson & Williams – XYZ Corp. $ 53,281 72,443 52,223 44,087 – Verizon »Balance 17,987 $240,021
  23. 23. • Accrued Expenses – Accrued salary (12/26 – 12/31) – Accrued vacation – Estimated expense reimbursements » Balance $ 12,495 12,253 13,000 $37,748 Search for unrecorded liabilities Look through checks written after year-end
  24. 24. Deferred Revenue • Conference registration, etc. • Assist in matching revenues and expenses • Key issues: – Maintain good schedules – Don’t worry about the small stuff
  25. 25. • Deferred Event Revenue • Assume Year Ended December 31, 2011 Attendee Name Event Name Date of Event Date of Payment Amt. of Payment John Smith Annual Conference 1/21/12 12/2/11 $ 750.00 - Get Events Department involved. - Don’t forget to recognize revenue after event. -Remember to match revenue with expenses.
  26. 26. Net Assets • • • • Unrestricted Temporarily Restricted Permanently Restricted Board Designation vs. Restriction
  27. 27. • Temporarily Restricted Net Assets Beginning Balance Revenue Expenses Youth Ed. $0 150,000 ( 50,000) Library $200,000 0 (100,000) Totals $200,000 150, 000 (150,000) Ending Balance $100,000 $100,000 $200,000
  28. 28. • Permanently Restricted Net Assets Donor Name ABC Foundation DEF Foundation Don & Mary Smith Date of Donation 8/21/20XX 5/16/20XX 2/10/20XX Amount of Donation $100,000 $250,000 $750,000 Don’t confuse a Board designation with a restriction. Look for implied restrictions. Understand the donor’s intent.
  29. 29. Statement of Activities • Nonprofit equivalent of the Income Statement • Shows how the organization performed during the period • “Change in Net Assets” is nonprofit equivalent of “Net Income/Loss” • Nonprofits are measured differently • Negative change in net assets isn’t necessarily bad
  30. 30. Revenue Considerations • • • • Contributions/Grants Special Events Investment Income Unrelated Business Income Tax (UBIT)
  31. 31. Contributions/Grants • Search for unrecorded grants and contributions – look through cash received after year-end • Compare actual amounts to budgets and projections • Be sure to get year-end pledges in writing
  32. 32. Special Events • Does Deferred Revenue seem unusually high or low compared to last year? • Is the timing of the event affecting the deferral? • Have you deferred all event expenses as well?
  33. 33. Investment Income • Does Interest/Dividend Revenue seem reasonable? • (Beg. FMV – Beg. Cost) – (End FMV – End Cost) = Unrealized gain/loss • Create a schedule of realized gains/losses
  34. 34. Unrelated Business Income Tax (UBIT) • Any uncertain tax positions? • Is expense allocation reasonable and consistent?
  35. 35. • Expense Analysis – Compare major expense categories to budget and/or projections • Investigate anything unusual – Perform analytical procedures • Do you have 12 months of rent recorded? • Does payroll expense reconcile to payroll returns? • Do payroll taxes and benefits seem to be a reasonable percentage of payroll expense?
  36. 36. Cash Flow Statement • Equally important, but frequently ignored • Reconciles change in net assets to change in cash • Answers the question: “We made money - where did it go?”
  37. 37. Reporting • Financial statements –Disclosures • SAS 114 Letter • SAS 115 Letter
  38. 38. Reporting • SAS 114 Letter –Defines responsibilities –Areas of focus on financial statements –Summarizes audit findings and adjustments
  39. 39. Reporting • SAS 115 Letter –Material Weakness –Significant Deficiency –Other Comments
  40. 40. Post-Fieldwork • Covers period since fieldwork • Search for potential disclosure issues • Subsequent events • Items auditors will need
  41. 41. If you have questions . . . J. Scott Denlinger, CPA Director (301) 951-3636 x6739 sdenlinger@cbiz.com CBIZ MHM, LLC 3 Bethesda Metro Center, Suite 600 Bethesda, MD 20814

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