2040-07 Functional Expenses/GAAP at Churches 2040-07 - ZZeod


TOPIC  Functional Expenses/GAAP at Churches                                            ORIGINATED  June,  2004

TOPICAL OVERVIEW:  Some believe it is necessary to present Functional Expenses of "Program, Management & General and Fund Raising"  at Churches within year end GAAP compliant audit reports.  This Onliner dialog speaks to these issues that includes Jim Bramer's view that it is NOT necessary for the reasons shared below..    

FILE: 2040-07                                                                                                              UPTDMarch 09, 2012

1st Onliner 
        To set the stage here -- GAAP   for non-for-profit organizations seems to say that the annual report is to portray all of their expenses as "Program, Management-General and Fund Raising, "  or what is commonly called "Functional Expenses".  Plus, of course, IRS Form 990 for non-Churches requires them to  display it's expenses in the "Functional Expense" format. 
        Is this really necessary for Churches? And if the Church does NOT do this, is it necessary for the Auditor to state something like the following:  "
Except for
 the functional accounting expenses in the areas of program, management/general and fund raising these statements are prepared in accordance with generally accepted accounting principles."

2nd Onliner:

        FASB 117 says that a complete set of annual financial statements is to
include the following for GAAP purposes
  • Statement of Financial Position (Balance Sheet)
  • Statement of Activities (Income Statement)
  • Statement of Functional Expenses for Voluntary health and Welfare -- AND ENCOURAGES IT FOR OTHER NON-FOR-PROFIT ORGANIZATIONS
  • Statement of Cash Flows
  • Financial Statement disclosures
3rd Onliner
        In view of the FASB info above, I am impressed with the fact that Churches are not Voluntary Health and Welfare entities and therefore do NOT have to provide expenses in Functional Expenses format.  It is also an issue that an annual audited report is rendered primarily for the local Board of Directions and members (not the general public) plus, of course, applicable loan agencies.  Churches do not have to file IRS forms 990.  Further, It seems to me, for example, that Fund Raising costs in a Church environment is a non-issue.
Jim Bramer

        When you Click Here you will find one of my Editorials as to my perspective on the overall topic of GAAP Overkill at Churches.
        In my judgment, requiring the
Functional Expense format at Churches is NOT what FASB 117 really wanted to accomplish.  My view is that a major intent of FASB 117 is to help a donor of a Publicly Supported Non-for-Profit
entity to have a feel for how much money was being spent for the reason it exists (Programs) and what are the necessary costs of  Fund Raising and Management-General.

        Therefore, I maintain that presentation of
Functional Expenses for Churches is not necessary.

4th Onliner:  
        Thank you, Jim, for expressing your opinion on this topic.  Do you have any examples of what, in your opinion, GAAP compliant annual Church audit reports would look like?
Jim Bramer   

        I trust you find the following such samples out on www.bcidot.org  to be responsive to your question:

          As most of you know, at  www.bcidot.org   dialog by email with Onliners regarding Ministry Finance (MinFin) matters.  Our purpose is to make topical MinFin information available to any interested  Ministry Finance Team  so we all can learn from these perspectives.   Thanx - Jim Bramer, Retired CPA-Auditor  - Proverbs  9:10

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