Accounting Outsourcing | What Financial Statements Do Non Profits Require
It used to be extremely commonplace that non-profits required reviewed engagements or audited financial statements says accounting outsourcing. The reason for this, is because in order to maintain their non profit or charity status, these organizations would have to provide reviewed engagements, or audited financial statements to submit to their Board of Directors.
Although that is still the case for some nonprofits today, itís becoming less and less mandatory for nonprofits to have to prepare audited financial statements to their Board of Directors says accounting outsourcing. One of the main reasons is because preparing a reviewed engagement or audited financial statement is extremely time-consuming for their chartered professional accountant to prepare, and because of this it is an extremely expensive financial statements to produce. The sheer scope is massive, and it may cost a charity over $10,000 to get a reviewed financial statement, and that may be a significant amount of their profits, preparing a reviewed engagement or audited financial statement may be cost prohibitive. They even forced charity to not be able to function due to the cost of iit, especially for small non profits.
Many Board of Directors have included this requirement in their bylaws, because it used to be quite commonplace. But as banks relax their position on what is required, and the cost of repairing engagements in audited financial statements continues to go up, charities and their Board of Directors should review their bylaws and consider if this is absolutely necessary. While preparing audited financial statements may sound nice and verify that the organization is being extremely thorough, however if forcing a charity to prepare reviewed engagements or audited financial statements may cause them undue hardship, they should consider if itís worthwhile.
Not only is the sheer scope of preparing reviewed engagements or audited financial statements so massive, charities and nonprofits should also be assured that as accounting software has evolved, so has the accuracy of notice to reader financial statements. These statements are assured to be arithmetically correct, where all of the numbers balance and the numbers are possible. The only difference between notice to reader financial statements and reviewed engagement and audited financial statements, is the amount of due diligence that the accountant uses in verifying those numbers as accurate. It doesnít improve the quality of the reports, and noticed reader financial statements are all that Canada revenue agency requires when filing your ends, so it should be considered a fairly accurate report.
Executive directors non profits and charities should require a review of their bylaws from their Board of Directors every couple of years and verify with their bank what is absolutely required. If the charity or non profit does not have specific requirements to provide reviewed engagements or audited financial statements, the Board of Directors should amend their bylaws to reflect this, is that charities arenít dishing out a significant portion of their budget to spend on accounting fees says accounting outsourcing.
There are three main types of financial statements that nonprofits can get at their financial year and says accounting outsourcing. While all of the financial statements contain the same amount of information, way they are produced is slightly different. There is a notice to reader financial statement, review engagement, and in audited financial statement.
The notice to reader financial statement has been prepared by an accountant and is arithmetically correct. The accountant has ensured that all of the numbers add up properly, the balance sheet actually balances. This is the most common financial statement for an accountant to prepare, whether itís for their clients, whether they are small businesses or large corporations says accounting outsourcing. This statement is the most time sensitive and cost effective financial statement to produce.
Reviewed engagements contain the same information as noticed reader financial statements, but the chartered professional accountant has verified the reasonability of the numbers using a variety of testing methods says accounting outsourcing. The goal is to verify that the numbers in this statement are believable instead of just possible. This takes additional time, and costs additional money.
Audited financial statements have been actually confirmed as accurate by the accountant by speaking to the bank, and verifying all of the totals as accurate. Accountant also is going to go through the Accounts Receivable report, send him statements and call customers with outstanding balances to ensure that the balances are still standing, and that the business is planning on paying. Rather than ensuring the numbers are believable or plausible, in audited financial statement, the accountant will verify as accurate says accounting outsourcing. This takes a significantly longer time to produce, and because itís much more time-consuming statement, it costs significantly more money.
Accounting outsourcing says that while audited financial statements used to be far more commonplace, as that costs go up, and requirements of verifying the accuracy of the numbers goes down, audited financial statements are becoming less commonplace. Typically, the only times that reviewed or audited statements are generally necessary is when a bank is granting an extremely large loan, and many non-profits.
Many nonprofits require audited financial statements, because it is included in their bylaws by the Board of Directors that that is what is needed, but accounting outsourcing says that charities should ask their Board of Directors to verify if this is still the case. The reason is because just creating in audited financial statements may be extremely cost prohibitive for non profits. They work so hard getting an entire year of donations, that having such a significant accounting bill at the end of the year may be detrimental to the non profit if the Board of Directors can investigate and verify if thatís actually needed for charities and nonprofits, you may be able to have that reflected in the bylaws, and no longer have the requirement for nonprofits be so hefty. This can be a significant bonus to nonprofits, who no longer have to spend so much of their donations on accounting.