[Anonymous]

Hi

had a quick question related to reviewing a church FS. A neigboring church has asked me (just got my license) to review their FS and state that they are in confomity with US GAAP. They need it in order to refinance a loan. My only hesitation is from a liability perspective. If something gooes awry and for some reason church stops paying.. bank will state that they relied on my review and sue..

has anyone had experience with his? or church audits/ reviews.

any help would be appreciated.

thanks

[mla1169]

This is certainly not an official answer, but all you would be attesting to is that their financials depict their status at a point in time, not attesting to their creditworthiness. I imagine there would be a barage of cases in the news if banks could hold auditors responsible for their deadbeat borrowers 🙂

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[littlenumberrobot]

My co worker just spent 3 months pretty much full time working on a Review for a church. He has 6 years audit experience and works often on this particular church every year. I think it may be more work than worth the risk. Are you practicing on your own? Do you have insurance, etc?

CA CPA - All because of the journey listed below
-----------------------------------------------------------------------
FAR - 53('10), 8/25/12 79 PASSED!
REG - 66('11), 69('12), 12/06/12 77 PASSED!!
BEC - 58('10), 74('12), 01/05/13 77 PASSED!!!
AUD - 43('11), 66('12), 69('13), 74('13) 7/29/13 85 PASSED!!!!!

(Combinations of Roger, Yaeger, Wiley Book, Wiley TB, & NINJA Notes)

Ethics 90%

[Anonymous]

I'm in the private industy so I don't actively practice on my own.

My thinking is along the lines of the risk/reward (comp) lines also. I haven't even seen their books (small/midsize church) but for ~$x I'm not sure if it would be worth the risk. I'm also not sure what I would charge as I havent seen their records.

[porschify]

In a review you are giving negative assurance, and are simply looking for obvious errors and omissions as it relates to conformity with GAAP. I do not see how a bank could hold you responsible if the church defaulted because you are not giving an opinion on whether everything is fairly stated.

REG- 81
BEC- 72,76
AUD- 67,88
FAR- 78

Done!

[Anonymous]

I'll give you the benefit of my experience as an Enrolled Agent doing the taxes of a couple clients who work for Churches—one as an actual Minister and one as a W-2 employee.

It can be quite frustrating dealing with Church administration because many consider themselves to be self-styled CPA's despite having no training what so ever. So you will deal with reporting on the wrong forms (1099 vs W-2 or no forms at all). Then there's the ‘well so and so at such and such Church does it this way'….in that respect much like Doctors often do to their tax accountants. They skip the IRS tax code and go to the TDI (they did it) tax code.

I've found Church employees (especially those with ‘professional' staff–read part time secretary who does the books) to be quite frustrating, especially when you need something changed. So I would strongly caution you to get your fee up front and to include a disupute clause in your contract stating that the retainer isn't refundable.

I had to fire a client and give them back their records because the Minister refused to properly report and account for his housing allowance. I got the ‘I've never had to answer that before' and ‘I'm not comfortable giving that information to the IRS' and ‘I was audited a couple years ago and won but I can't remember what for' routine. I tried to turn him into a good client but he was just shady, to say the least. So I fired him. The problem is that down the road there was any number of tax preparers willing to turn their head the other way and report it how the client wanted it. No, I am not required to verify the information but I had enough red flags to warrant investigation of this guy's records. In doing so, I realized he wasn't someone I wanted to deal with. I do much more verification than the other preparers in my area (I often get the “I've never been asked this before” protests to which I reply “Sorry your tax preparers aren't doing their job), I suppose you get what you pay for these days”. My feeling is that I didn't do my job if the client is audited and loses.

Not dissing on Churches but sometimes the people working for them can be quite inflexible. So price accordingly and be sure to cover yourself in an exit clause if they don't want to correct mistakes. Their books are often manned by well meaning volunteers or untrained people and can be quite the can of worms, so to speak.

[Anonymous]

@ porschify- i'm with you ..just thinking worst case scenario..

@CPApending- great advice.. duly noted.. would you have a specific framework as to how to come up with a fee. Are you able to share what you charge for the prep of taxes? The church is small to midsize curch ,but that obv doesn't represent how much work it is going to be.

[Anonymous]

Well both of my clients who are employed by the Church have Schedule C businesses and/or Schedule E rental homes so the price is inflate significantly. I charge each about $400 for their Fed and State return, but I will say that as long-term clients I have them clicking on all cylinders, so to speak. They have everything so well organized that it takes me minutes to do their returns.

My best advice is to take a quick peek at the books and their state before signing up (maybe 30 minute free consultation) and go from there. I would then figure your price and add 25% to what you would normally charge a similar business. Then at the end, if the books are in good order, you can potentially reduce your fee somewhat as a measure of goodwill.

[Anonymous]

AcesUp,

When you draft your engagement letter, you may consider stating that your fee is based on standard hourly rates and contingent on cooperation of staff/availability of records. There is nothing wrong with not giving a flat fee upfront. Due to the nature of churches, they will want a cap or rough estimate, but in that case, you can give them a range.

Another question that comes to mind… are they giving you complete GAAP statements with note disclosures? or will you be drafting a financial statement from their Trial Balance?

At our last staff meeting, we discussed agreed-upon-procedures and “comfort letters” to banks…. it's really important to have the correct language in your reports so as not to mis-lead the bank and make sure you are not giving any assurance to their creditworthiness.

If you do the leg-work and make sure you cover yourself, there's no reason not to take on this client unless you have any suspicion of unethical management, etc.

[Anonymous]

@ceepa- good point.. Need to lay out language..

@ CPApending – duly noted. my main concern is liability. I am going to set up a PC (Prof Corp) in NY. need to do more research but it looks like its $125 fee plus taxes on shares issues. again need to do more digging.

I was really hesitant on doing it but a friend in another field made a good point in saying that my CPA was useless if I wasn't going to use it (m in private doing something unrelated).. i think esp in these economic times we all need to put that chit to use.. the CPA license that is..

[jelly]

If they have anything on Guidestar, you can maybe get a historical primer on what their numbers are like.

Find out what it is they need exactly, i.e. attest in writing? I suspect that starting up, you'll be eating a fair amount of time learning how things work, their budget, current and future cashflows as it relates to the loan, and any kind of investments/endowments that coughs up residual cash.

And if you are really not comfortable with handling this, don't hesitate to take a pass. There's a lot of liquidity issues going on right now in the for-profit and non-profit word until the Presidential election is over.

Couldn't pass again!

[Roxwella]

I suggest not going corp..its a pain in the butt to set up and dissolve, and it still keeps you in the hot seat because you are sole owner/fiduciary/the board. Set up an LLC or Professional Services LLC with the state and take the income on your Schedule-C.

Regarding the review. In comparison with a full audit the liability you take on is minimal. You aren't dealing with audited financials, which means you are not dealing with shareholders and $millions in secondary claims on the company (after liquidation…they come for you!).

But, at the same time, standards state you have to be capable of completing this service competently (or something like that….:). No offense, but it doesn't sound like reviewing financials is something you have really done before. I would request to see the statements they have and asses how complex their situation is. If you feel comfortable with it and your relationship with them, go for it (I have seen wildly complicated church income/balance sheets, and also very simple ones). If it gives you the willies, kindly decline and offer the name of another firm. Just make sure not to get yourself in a situation where you don't understand what your signing and you should be fine.

Just my two cents! Goodluck

[nsmith9]

I am in assurance services and regularly due reviews for larger privately held companies. Many of these companies do not spend much money on non-revenue generating expenses i.e. accounting dept. A first year review will take about 50% more time than a second or third year review and I can almost guarantee that their Trial Balance doesn't even balance and if it does, it is because they plugged some random account. I also have a couple non-profit (builders assoc) clients that do not have full time book keepers and the main difficulty beyond the normal “issues” is being able to get answers to questions. I would be weary because a review sounds simple but without experience, it is no where close. Why not jump into public? Or, work part time at a smaller firm to get experience first, because I don't think it is possible for a newly minted CPA to complete a quality review. Remember the bank is placing a certain amount of reliance on your report and the client is expecting a timely review.

[Anonymous]

Thanks again guys for the advice. no offense taken at all to anything.. need all sides and opinions.

I started off in public years ago in Deloitte nyc- financial services. Did 2 yrs in Audit and 1 year in Tax and eventually split to a Hedge Fund after these clowns made me work til 3:30 AM the day before my vacation.. Flight was at 7am..

I absolutley do have to brush up on the audit/review skills. I was reviewing the SSAR's and other Lit. last night and found a couple of checklists- (specifically for churches)…got a good feel for what I have to do (if anyone has any resources/ literature, would appreciate the share)

I spoke to the one and only accountant who keesp the books on Quickbooks-cash basis, who is my wife's, mother's friend. It's a small church , with about 250 indiv (including kids) in a small suburb. total receipts = < 350k-375k, which apparently is relatively small.

Assets- a few PC's, phones, desks, chairs, TV's, a 30k sounds system and the actual church itself.

Liabs- Loan for 800k

Receipts- parishoner contributions

Expenses – lights, water, etc..

She will send me the TB and any financials later today. Will review and go over the standards, literature, checklists to consider if can provide a quality/timely review.

thanks again for replies..

[Anonymous]

@roxwella- am I oversimplifying the review? I will obv go about this diligently as to not leave myself exposed, but the standards appear to lay out a structured framework which I can follow. Is there anything that I should be looking out for? again, i still haven't seen their TB's/ F.S as of this morning.

[Roxwella]

I don't think your oversimplifying. Review is pretty cut and dry. You have been involved in audit and your brushing up on standards, I think your covering yourself nicely.

One thing to make sure of is that there are no standards for the organization the Church is a member of (ex. Book of Order for Presbyterian churches, here is a checklist they prescribe https://www.glpby.org/documents/financial_review_guide.pdf , or for Catholic Parishes https://www.archden.org/repository/Documents/FinanceAdmin/ParishResourceInfo/ParishReviewProgramManual_Revised6.30.09.pdf which appears to be a bit more involved than a regular review). Of course those standards don't supersede, but they will give you some non-standard church items to review, and reviewing them may give you a bit more expertise.

[Author]

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