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WHAT TO EXPECT DURING A CPA AUDIT

This is written by The NYS OFFICE OF THE STATE COMPTROLLER as information for Fire Districts when getting a CPA Audit. Fire Districts in NYS now have audit requirements if revenues exceed $200,000 (Since 2007). This guide can be a good reference to any organization getting a CPA audit.

The guide can be found here: http://www.osc.state.ny.us/localgov/firedist/cpaauditprocess.pdf

WHAT TO EXPECT DURING A CPA AUDIT

Planning Phase:

I. Auditors will ask you to sign an engagement letter summarizing terms and conditions of audit, including:

a. Method of accounting - Accrual versus cash basis

b. Generally accepted auditing standards

c. Government auditing standards

d. Fees and payment terms

II. Preliminary planning meeting with Fire District (FD) management/financial personnel

a. Gather historical documents

i. Charter, By-Laws, etc.

b. Gather information regarding internal controls

i. Cash receipts

ii. Cash disbursements

iii. Payroll

iv. Property and equipment acquisition

v. Other

c. Communication with FD Board and/or Finance Committee

d. Discussion about fraud risk and fraud risk assessment

e. Discuss/negotiate the level of assistance from FD to auditors

i. If you provide assistance, this will keep your audit fees lower

f. Establish timetable for completing the work

i. Planning

ii. Fieldwork

iii. Financial statement completion

III. Auditor will ask you to sign confirmations.

a. Bank accounts

b. Investments

c. Significant amounts receivable

d. Revenue contract with Town

e. Legal representation letter to your attorney

f. Other

Fieldwork Phase

I. Auditors will typically spend several days on-site at FD

a. Will need physical space to work

b. Will need access to records

c. Will need access to FD personnel who can answer their questions

II. Auditors will want to review:

a. Board minutes

b. Finance reports issued by you during the year

c. Copy of your annual budget

d. General ledger

e. Journal entries

f. Bank statements and cancelled checks

g. Original invoices for assets and expenses

h. Payroll records

i. Contracts

j. Major leases

k. Bank loans and mortgages

III. Auditors should want to physically inspect certain assets

a. Major equipment (new and older items)

b. Building

c. Major construction projects

d. Possibly look at major inventories/supplies

IV. Auditors will usually ask many questions

a. Explanations for key transactions

b. More backup to support transactions

c. Reasons for fluctuations between your budgeted and actual results

Financial Statements, Reports and Wrap-up Phase

I. Auditors will provide you with proposed changes (adjusting entries) to your records

a. You need to agree or disagree

b. Possible to "pass" on minor proposed adjustments

c. Auditors will ask you to sign a "Management Representation Letter" at end of audit to codify various questions and answers provided during the audit

i. Usually signed by key member of management and at least one Board member

II. Auditors will provide draft financial statements for your review and approval

III. Auditors should provide other written reports

a. Letter on reportable conditions (internal controls) and/or management letter suggestions

i. Major internal control weaknesses, if any, will be identified with recommendations for improvements

ii. Other comments may cover minor internal control weaknesses or efficiency tips

b. Communication letter to Finance Committee or Board

i. Summarizes the results of the audit, including:

1. Accounting policies

2. Accounting estimates

3. Audit adjustments recorded

4. Describe any difficulties dealing with management

5. Other

IV. Auditors should be invited to present their reports to Board or Finance Committee

a. Board or Finance Committee members should ask questions

V. Good communication between auditors, Board and FD personnel will increase the chances of a smooth and effective annual audit

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UPDATE: Enhanced charitable deduction for contributions of food inventory

The American Taxpayer Relief Act of 2012 (ATRA) retroactively extended the enhanced deduction for qualifying charitable contributions of food inventory made by taxpayers [IRC Section 170(e)(3)(C)].
 
In the case of donated Food inventory, the deduction typically is limited to the taxpayer’s basis in the property. However, under Section 170(e)(3)(C), charitable contributions of food inventory that are used to care for the ill, the needy,  or infants may result in an enhanced  deduction (subject to the 10% taxable income limitation). The enhanced deduction is equal to the taxpayer’s basis in the contributed inventory, plus half of the profit that would have  been recognized if the inventory had been sold at its fair market value on the date of contribution, not to exceed two times the taxpayer’s basis in the contributed inventory.
 
On August 1, 2013 U.S. Rep. Sander Levin (D-MI) and  Rep. Jim Gerlach (PA-06) introduced Bill H.R.2945 to amend the Internal Revenue Code of 1986 to permanently extend and expand the charitable deduction for contributions of food inventory. Among other things this bill will increase the 10% taxable income limitation to 15% and extend the deduction to some C-corps.

 

 

 

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