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Financial Reporting Chestnut Payroll & Accounting consists of Christian men and women committed to serving large or small Church and nonprofit organizations with economical and confidential business counsel. Chestnut Payroll & Accounting accountants work with nonprofit organizations to produce financial statements which are consistent with accepted guidelines and include these standard elements:
There are a variety of services that Chestnut Payroll & Accounting accountants provide related to financial statements. These range from compiling the statements from the accounting records of an organization to providing various levels of assurance about the accuracy and presentation format of the statements. The highest level of assurance is provided by an audit of financial documents and records. Financial Statement Services A full set of financial statements contain a balance sheet, a statement of income and retained earnings, a statement of cash flows and notes to the financial statements. A client may choose to have us prepare something less than a full set of financial statements depending on the relationship of cost and benefit to the organization. There are different reporting periods: monthly, quarterly, annual or a specified period. Again, the reporting frequency is dictated by the client’s needs for timeliness of information in order to evaluate performance. What Do Accountants Do With Them? There are three different reporting standards that Accountants use that reflect their underlying work performance standards. These performance standards allow us to express a level of assurance about the financial statements being prepared. Those three are:
These levels of performance standards can be something that our clients use to judge their business performance. More commonly, they are relied on by third parties (creditors, grantors, potential donors, etc.) who want to make a judgment about doing business with our clients. What is a Compilation? A compilation is the preparation of an organization's financial statements by an accountant based on information provided by management of the organization. The accountant issues a standard report with the financial statements. However, that report states that it provides no assurance at all about the financial statements. The data is merely arranged into a standard financial statement format. What a Compilation Entails To compile the financial statements, the accountant must obtain an understanding of the organization's transactions and how they were recorded. We consider whether the accounting system from which the data came seems to be functioning adequately and help adjust the accounting records as needed. The standards that apply to a compilation engagement require the accountant to read the compiled financial statements and consider whether they are appropriate in form and free from obvious material errors. Accounting principles require that certain disclosures be made along with the financial statements. When the compilation omits these, the omission must be stated in the report. What is a Review? A review is an assurance service that accountants can perform for an organization's Board of Directors to provide limited assurance about the financial statements of the organization. The assurance indicates only that the accountant is not aware that any material modifications to the financial statements are needed in order that they conform to accounting principles. As with an audit, the accountants must be independent of having any financial interest in the organization and of any close relationships with key people within the organization. The report is presented in the form of an opinion from the accountant. It indicates that the review consists principally of inquiries of organization personnel and the application of analytical procedures to the financial data. It also expressly states that a review is substantially less in scope than an audit. The assurance that no modifications are needed does not include small dollar amounts that would have an insignificant impact on someone relying on the financial statements. As with an audit, the assurance is based on reasonableness, not exactness. What is an Audit? An audit is a service that accountants provide to the Board of Directors of an organization to give assurance that the financial statements of the organization are presented in accordance with accounting principles. The accountants must be independent of having any financial interest in the organization and of any close relationships with key people within the organization. What an Audit Entails All types of organizations engage accountants to perform audits: publicly and privately held, for-profit and not-for-profit. An audit is an assurance service that reports to the Board whether the organization's financial statements are free from material misstatement and present fairly, in all material respects, the financial position and results of operations of the organization. The report is presented in the form of an opinion from the accountant. The opinion does not guarantee absolute accuracy of each number on the financial statements. Rather, it indicates that the statements are a fair presentation to within a reasonable dollar amount. That dollar amount is relative to the size of the organization. For instance, a discrepancy of $10,000 on a line of the financial statements of an organization with of budget of $10,000,000 would probably not have much impact on someone relying on those financial statements. But it probably would affect the judgment of someone relying on the financial statements of an organization with a budget of $100,000. Accountants are required to follow certain standards when performing an audit of financial statements. These standards include examining the evidence that supports the amounts on the financial statements and the other information that is presented in the form of notes to the financial statements. This examination is done by testing certain account balances and transactions. From these test procedures, the accountant accumulates evidence on which to base the opinion that is reported to the Board of Directors. The accountant plans the audit to gain a reasonable assurance that the financial statements are free of material errors, including errors resulting from fraud. However, certain types of fraud, especially where forgery or collusion has occurred, are not likely to be detected by a financial statement audit. Audit standards do not require the accountant to perform the extensive testing that would be used in an audit specifically designed to find fraud, as in the case when there is evidence that a fraud has occurred. An audit includes an assessment of the design and operation of checks and balances but only for the purpose of forming an opinion as to the material accuracy of the financial statements. The primary focus is whether the financial statements are misstated. An assessment of risks and the design and operation of procedures addressing those risks are not the primary focus of an audit. Assurance About What? The levels of assurance—none, limited and positive—relate to the fair presentation of financial statements in accordance with generally accepted accounting principles. While the business community still sees this assurance as valuable in its decision making processes, there has been growing demand for assurance related to specific risks perceived as the most relevant to their needs. For example, you may apply for a loan at a bank. The lender has read your reviewed financial statements and likes what he sees. In deciding whether to lend to your business, though, he would like some additional assurance that your revenue figures are accurate. |
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