December 16, 2008

External Audits of Churches

Question:

If a church wants to have its books externally audited, are there CPAs out there who understand church accounting who could perform a church audit?

Answer:

Church financial statements prepared in accordance with Generally Accepted Accounting Principles follow the FASB 117. Just as other tax-exempt organizations, this requires classification of the church's Net Assets (the amount by which Assets exceed Liabilities) in three funds: Unrestricted, Temporarily Restricted, and Permanently Restricted.

Unless the statements are to be prepared using an Other Comprehensive Basis of Accounting (OCBOA), most CPAs will likely require preparation of the audited financial statements following FASB 117. Most CPA firms, I believe, are fully capable of providing this service.

My experience tells me that many churches have not adequately accounted for the activities of these three funds. For this reason and others, most churches will find an external audit to be cost prohibitive. I do not provide these services, but a quote receive by a small congregation in Wisconsin within the past five years placed the annual cost at $12,000.

Accordingly, many churches have adopted internal audit policies.

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