Audits - CPA Types of       0003-01                  ZZall

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                       TO: Interested Ministries                                                                           FROM: Jim Bramer,  Retired Auditor CPA
                                                                                                                                                FILE: 0003-01/all   

                        RE: Annual Auditor Assignment - Types of                                        Originated:  December 1979                 


      Someone other than a CPA-Auditor may use the term "audit" and might be imprecise, but the CPA-Auditor uses the term "audit" in a very limited manner as explained below.

Year End "Opinion Audit" Engagement:

            The CPA-Auditor performs an unrestricted examination/audit (gets behind the numbers) of the books/financial records and does everything which they feel in their professional judgment is necessary so they can render an opinion as expressed below. Please note, there is no guarantee against fraud or embezzlement. In addition to the written opinion below, this engagement also often results in some type of "Management Letter" and may includes some type of 'grades' on the client's internal controls or system.
            This demands the largest fee since the CPA-Auditor must spend the necessary time and expertise to enable them to express a professional opinion. The CPA usually means this engagement when the term "Audit" is used --- and it goes something like this:

      We have audited the accompanying Statement of Financial Position of XYZ Ministry as of June 30, xxx1 and xxx2 and the related Statement of Activity and Changes in Cash Flows for the Years then ended. These financial statements are the responsibility of the Ministry's Management. Our responsibility is to express an opinion on these financial statements based on our audits.
      We conducted my audit in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides reasonable basis for the opinion.
       In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of XYZ Ministry as of June 30, xxx1 and xxx2 and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles."

Year End "Review" Engagement

      The client closes the books and might prepare the annual financial statements. The client consults with the CPA-Auditor concerning various additional year end closing and/or technical matters. The CPA-Auditor then follows the standards set forth by the AICPA (American Institute of Certified Public Accountants) and related entities as they make certain inquiries of organizational personnel and applies various analytical procedures to financial data and presents financial statements over the CPA-Auditor's letterhead with the following Statement:

     The financial statements, identified below, of the XYZ Ministry as of December 31, xxx1 and xxx2 for the years then ended have been Reviewed by us in accordance with standards established by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. All information included in these statements is the representation of Management of the XYZ Ministry. A Review consists principally of inquiries of organizational personnel and analytical procedures applied to financial data. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
      Based on my Review
, we am not aware of any material modifications that should be made to the above referred financial statements in order for them to be in conformity with generally accepted accounting principles."

    In addition to this written statement, this engagement also often results in some type of "Management Letter" and usually includes some type of 'Grade Report.'  Click Here for some examples. Since the CPA-Auditor spends less professional time on a "Review" engagement. the fee is less. The client may have a "Review" in mind when he uses the term "Audit".

    Compilations (1)

    Sometimes a Ministry will have a "Compilation" relationship with a CPA-Audit  firm. 
    This is usually a monthly relationship where the CPA-Audit  firm completes the client's transactions and renders financial statements over the CPA-Auditor's letterhead.  Clients and others realize that a CPA-Audit  firm would not render financial statements over their letterhead if they did not believe them to be true.  The CPA-Auditor generally is at least satisfied that the bank is reconciled and the list of what is owed to the Ministry, or what the Ministry owes to someone else, agrees with the totals appearing in the financials (control accounts agree with the subsidiaries, etc.) 
    At the year end the CPA-Audit firm would see that the annual report is year end GAAP compliant  -- Click Here for more details. 
 This engagement could very well also result in some type of annual 'Grade Report'  --- Click Here for some examples..
    I know of a Church that had their CPA-Audit firm render only a year end GAAP compliant "Compilation" report since it serves as an abbreviated "Review"  report (see above) that met the internal and external needs of the Church leadership and their "Church loan providing" Bank.  Providing such an annual report over the CPA-Auditor's letterhead takes less time (therefore money) of both the Church staff and the CPA-Auditor. It says something like the following:

    We have compiled the accompanying financial statements for the year ended December 31, xxxx in accordance with standards established by the American Institute of Certified Public Accountants (AICPA).
    A compilation is limited to a presentation in the form of financial statements that is the representation of management.  We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any form of assurance on them. 
    (Then the CPA firm often mentions specific known report AICPA deficiencies, etc.) 


      We encourage Ministries to consider a "Multiple Year" relationship with their CPA-Auditor and embrace various types of year end relationships. Some smaller clients skip a number of years between "Opinion Audits" without any problem since they have the continuity of professional services and creditability, regardless of Board or staff member changes.

    Please Go Here  for more information on these topics re Churches.


                    AICPA = American Institute of CPAs                     
                    CPA = Certified Public Accountant

      This publication originated in December 1979  and  UPTD: May 23, 2010