Tag Archives: SAS rules

More Questions and Answers

Questions and AnswersHere are some more nonprofit accounting and financial questions that have come to from this site and from my workshops and my answers.

Question – Should the donor know?

I am curious to know if FASB 116 or FASB 117 prohibit the use of endowment as collateral against a line of credit without donor’s acknowledgment or knowledge of this action.

Answer – I do not believe that either of those prohibit the use of endowment funds as collateral. But unless the donor has told you it is OK to use the funds in that fashion I would be very wary of doing so without the donor’s consent. It has happened before that nonprofits have used the funds as collateral and then lost those funds. You could be in for some hard times if that happens.

Question – SAS 112 issues

For the past two years, our auditor firm has noted material weakness in the management letter due to the fact that there are adjustments made to deferred membership revenue, interest revenue, depreciation, etc. We were told that this could impact us getting grant monies and these “weaknesses” need to be corrected.

It was my understanding that an audit was to make necessary adjustments so that the books balance and reflect the current financial state. We were told by our auditing team this year that there are not allowed to make adjustments to our books and that is why there are material weaknesses. This has never been an issue before last year nor was it an issue with other auditing firms. Any guidance?

Answer – Those SAS rules for risk assessment kicked in at the end of 2006. As these weaknesses are listed in the Management Letter and become a part of the audit, a funder who asks for a copy of the audit might question what those weaknesses are. The SAS rules change what auditors are allowed to do. Making changes to your books may infringe on their independence, which under the new rules is a pretty big issue.

The purpose of an audit is to verify the quality and soundness of your organization’s financial reporting. The errors they find are now up to you to fix. If they can give you some direction on how to fix them and then how to do the entries correctly going forward you should not have anymore problems.  Otherwise, if the auditors keep finding the same mistakes the language gets more severe.

Question – Remote Employees

Do you know of any best Practices with regards to remote employees or employees who work from home?

Answer – Here are two articles that may be of help:

More questions answered in the next post!

SAS 61, 112 and 114

Statement of Accounting Standards 112

SAS 112 goes into effect / becomes effective for periods ending on or after 12-15-06. I have mentioned in recent trainings that auditors will soon be looking more closely at your internal controls. With this new standard they are now obliged to report any deficiencies to your board and in the auditor’s report. From the document linked to below:

Requires the auditor to communicate control deficiencies that are significant deficiencies or material weaknesses in internal control.

A significant deficiency is a control, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected.

A material weakness is a significant deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Here is a PDF of that tells more about it.

Statement of Accounting Standards 114

SAS No. 114, The Auditor’s Communication With Those Charged With Governance, was recently issued by the ASB. The new SAS supersedes SAS No. 61, Communication with Audit Committees, and is effective for audits of financial statements for periods beginning on or after December 15, 2006 (generally, 2007 calendar year-end audits.)

The new SAS establishes standards for the matters required to be communicated by the auditor, the form and timing of that communication, and to whom the matters should be communicated. These new standards apply to all entities regardless of size, ownership, or organizational structure.