Non-profit entities utilize a large number of services from CPA firms, starting with assistance in obtaining tax-exempt status. In fact, many small accounting practices with just one or two CPAs are specialists in addressing the non-profit sector. Not-for-profit organizations incur many financial needs that accountants master by study for CPA exam completion.
Auditing is an especially common accounting service to non-profits. The annual audit assures that a non-profit is performing the charitable function it was created to accomplish. Key audit objectives described in CPA review material deliver vital assurances to donors of non-profits just as public company audits benefit investors. Audited financial statements are particularly valuable to providers of grant money for non-profits.
A very large donor of grants to non-profit entities is the US government. The Office of Management and Budget administers $600 billion of grants every year to non-profits as well as to state and local governments. The OMB publishes guidelines for audit of governments and non-profits in Circular A-133. Auditing of these entities is referred to in CPA study as single audits.
Proposed reforms to Circular A-133 impact the circumstances under which a single audit is required. If approved, a new threshold will exist for classification as a small non-profit that’s exempt from obtaining a single audit. Single audits would be triggered only when total annual grant spending by the organization exceeds $750,000 rather than the current level of $500,000.
The suggested OMB measure is part of a process for streamlining the grant system and eliminating unnecessary costs. However, the proposal does not remove the need for non-profits to procure special accounting services. A requirement would remain for small non-profit organizations that spend less than $750,000 per year in federal grants to make records available for inspection. Therefore, accountability of non-profits to the standards in CPA preparation courses remains in effect.
The OMB proposal also mentions which federal grant programs necessitate single audits. In addition, the mandatory compliance requirements tested in the single audit process are reduced to only six in the OMB proposal from the current number of fourteen. Among the factors for testing are common audit elements understood from CPA courses, such as cash management and reporting procedures. Also relevant to non-profits in particular are monitoring for allowed activities and eligibility for specific grants.
A new requirement would impose disclosure of more detail about questionable findings in a single audit. However, the transaction amount that triggers such inquiries would rise from $10,000 to $25,000. Best of all for CPAs specializing in the non-profit sector is that eight existing OMB circulars pertaining to different non-profit categories are expected to become one combined document. At least that change will make keeping up with OMB audit standards a less challenging task.
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