Government/Not-for-Profit – AICPA releases 2013 GAS/A-133 Audit Guide

As a result of the Clarified Auditing Standards and the issuance of the 2011 revision of Government Auditing Standards, the 2013 edition of the GAS/A-133 Audit Guide has been extensively rewritten. While this has far-reaching implications for auditors, governmental entities and not-for-profits who receive federal financial assistance should also be aware of what these changes mean for them.

Chapter 2 of the guide on Independence has been comprehensively rewritten. Performing non-audit services for a client – like assisting with the preparation of financial statements – can impair independence. Management has certain responsibilities in designating capable employees to oversee these services and must accept responsibility for the work in order for the auditor to issue an opinion. Likewise, the auditor independence is impaired if other management functions are performed. In a nutshell, the auditor is not allowed to audit his/her own work.

There are a number of report changes that went into effect at the end of 2012. Fiscal year governments and not-for-profits will see these changes this year. The new reports will appear difference in appearance, with headings and subsections, but the biggest changes for clients is the specific wording about what management’s responsibilities are and what responsibility the auditor bears. Long gone are the days when small and mid-sized cities, towns, villages and school districts could say, “well, the auditor did this”, or “the auditor made this entry” – those responsibilities have always belonged to management, and now the reports specifically detail that fact.

Not-For-Profit – Reporting Contingent Gifts

When a donor provides a gift to a charity that is conditioned upon the charity performing some act or a certain event occurring, a deduction for the donation is only allowed once that event has taken place. There is an exception to this rule – the deduction is allowed in the transfer year if the possibility that the charitable transfer will not become effective is so remote as to be negligible [Reg 1.170A-1(e)]. A recent Tax Court decision illustrates the definition of remoteness (Graev, 140 TC No 17 (2013). In that case, the charity held that, as they had received a number of contributions of the type in question and had never had to return any of them, the chance of having to return this particular contribution met the negligible test.

The IRS disagreed and the Tax Court upheld the IRS in the case.

Not-for-Profit – FASB Issues ASU on Contributed Services

On April 19, 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-06, Services Received from Personnel of an Affiliate. The ASU was issued to provide guidance about recognizing and measuring services that a nonprofit organization receives for no cost from personnel employed by an affiliated entity.

The amendments included in this Update require a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services. However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that service received at either (1) the cost recognized by the affiliate for the personnel providing that service, or (2) the fair value of that service.

The amendments are effective for years beginning after June 14, 2014 and early adoption is permitted. The ASU can be downloaded for free from the FASB website at