Audit and Accounting Standards Updates Nonprofits Need to Know


In this ever changing landscape of rules and regulations, nonprofit organizations need to be especially aware of the changes that will guide their audits. Being prepared for an upcoming audit is the best way to ensure a smooth and successful process. Please see our brief overview of Audit and Accounting Standards updates nonprofits need to know.

1. SAS No. 115 Communicating Internal Control Matters Identified in an Audit
Provides guidance to auditors with respect to what should be communicated to management and those charged with governance in an organization. It requires the auditor to make communications, in writing, to management and those charged with governance regarding significant deficiencies and material weaknesses in internal controls that you note in your audits.

2. SAS No. 116 Interim Financial Information
To revise AU section 722 of AICPA Professional Standards to establish standards and provide guidance on the independent accountant’s professional responsibilities when the accountant undertakes an engagement to review interim financial information of a nonissuer when certain conditions are met.

3. SAS No. 117 Compliance Auditing
Establishes standards and provides guidance on performing and reporting on an audit of an entity’s compliance with applicable compliance requirements of a governmental audit requirement.

4. SAS No. 118 Other Information in Documents Containing Audited Financial Statements
This is effective for audits of financial statements for periods beginning on or after December 15, 2010. It establishes a number of presumptively mandatory requirements for the auditor to perform when a client provides additional information in documents containing audited financial statements.

5. SAS No. 119 Supplementary Information in Relation to the Financial Statements as a Whole
Requires additional documentation from auditors and procedures around supplementary information, using the same materiality level used during the financial statement audit. Effective for audits of financial statements for periods beginning on or after December 15, 2010.

6. SAS No. 120 Required Supplementary Information
Effective for audits of financial statements for periods beginning on or after December 15, 2010.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under Internal Revenue Service Code. The technical information here is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. For additional information, please contact our firm at or 561-798-9988.


Top 10 Lessons Learned: A CPA Firm

Templeton & Company, a 50-person CPA firm headquartered in South Florida, implemented Microsoft Dynamics CRM in 2002.  Although the company has a subsidiary firm, Templeton Solutions, which a Microsoft Dynamics Partner, the accounting practice still dealt with its own struggles and challenges in rolling out the solution firm-wide.  Here are their lessons learned:

  1. Tightly integrated process/people/technology.  With your business processes and workflow outlined and mapped out, it will enable your firm to easily address and visualize how it should be automated in the system.  Many companies who do not have this mapped out run into the pitfalls of trying to have the technology guide how they run their business. It should be the other way around, otherwise, it’s just a waste of resources.
  2. Define your goals. What is your picture of success?  Do you want to have a one-firm approach to clients and prospects?   Having measurable goals in-place from the outset will help you better gauge whether or not your implementation is “worth it.”
  3. Establish the team. The team should be comprised of members of the marketing team, IT group the leadership team as well as other users – maybe even from other offices so you can garner a true cross-section of your firm.
  4. Manage Expectations: Tell the story as to why this is a tool that will benefit all users and plan to show them how.  Communicate effectively and routinely
  5. Promote from within.  Think about the communications train and each stop along the way.  Talk about the process that the firm will go through, that the firm is going through, and what the end result will look like.  Don’t assume everyone knows what’s going on.
  6. Identify “WIIFM” What’s in it for me across the entire firm.  If you are expecting people to shift gears as far as how they work and operate and get them out of their comfort zone, be sure to back it up by explaining what the firm will accomplish with their participation.
  7. Quick wins are important.  Roll CRM out in phases, and don’t make the common mistake of biting off more than you can chew at any given time.
  8. Meet face-to-face consistently. Gather the pre-determined team and set  up weekly or bi-monthly meetings.  Be open to feedback during the meetings
  9. Measures of accountability.  Define what will motivate your team to use it whether it be compensation, peer pressure, or the new firm standard. Stick to it!
  10. People need single source for all their needs and questions.  Have a sort of ombudsman who has the soft skills where staff will feel comfortable addressing concerns to him or her, but also have the technical knowledge and authority to make sure that the message is heard from the technical and pre-established internal CRM team.

Issues facing businesses

By: Steven Templeton, CPA, CVA, Managing Partner

International Financial Reporting Standards (IFRS)

After the Enron debacle, the American Institute of Certified Public Accountants (AICPA) assumed a leadership role in the rush toward an international set of accounting standards (IFRS).  The long and proud independent standard setting process in the United States of America is being phased out in favor of an international standard setting process with an international governing body, the International Accounting Standards Board (IASB).  So what’s the big deal?

Confusing Standards?

So will we have a single, simple, principles-based global set of accounting standards?  Not so fast, my friend!  Initially, public companies will be required to convert to IFRS while private US companies could choose to adopt IFRS for small- and mid-sized entities or could, along with not-for-profit organizations, continue to report under generally accepted accounting principles in the United States.  Bankers, investors, analysts and other users of financial statements will need to be cognizant of the differences and understand them in order to properly analyze financial statements and make useful industry comparisons.

The AICPA released results of a survey showing that more than 80% of AICPA Council members strongly support GAAP differences for U.S. private companies and not-for-profit entities from the international GAAP that will be required for U.S. public companies.  It’s safe to say that the support for a universal adoption of IFRS for public and private companies alike is weak.

Interestingly, Charles Niemeier is also more broadly challenging the conversion to IFRS. He was a member of the Public Company Accounting Oversight Board and was previously the U.S. Securities and Exchange Commission chief accountant in the Division of Enforcement and co-chair of the SEC Financial Fraud Task Force. Overall, he is not in favor of switching from U.S. GAAP to IFRS, and suggests that we continue to fix what’s broken as opposed to converting to a whole new set of less mature standards.

Convergence or Conversion?

Early on, the IFRS conversation centered around “convergence,” giving one the impression of an evolutionary process whereby US standard setters would work with the global International Accounting Standards Board (IASB) to achieve a common set of high-quality, accepted accounting principles.  As it stands today, there are broad areas of disagreement between IFRS and US GAAP and a myriad of issues addressed by US GAAP with a non-existing IFRS counterpart.  In short, US public companies are being required to convert from US GAAP, the gold standard of accounting principles, to the inferior, less developed international standards.  Rather than allow IFRS to converge with US GAAP over time, the international G-20 leaders have called for the new global set of accounting standards to be completed by June 2011, ready or not!

Here’s what Mr. Niemeier had to say about the process of converging United States generally accepted accounting principles with IFRS:

“I agree with the original goal of the International Accounting Standards Board and Financial Accounting Standards Board to enhance comparability of financial reporting by converging their standards based on quality.  Unfortunately, in the last few months the focus has changed from achieving comparability of financial reporting to establishing a set timetable to switch the U.S. to IFRS. This change de-emphasizes the quality of the standards in favor of speed, and appears to be more based in politics than in what is in the best interests of investors.  For a number of reasons, I believe that this new path has the potential of de-linking us from our current regulatory model. Instead, in my view, we need to return to a policy of convergence, where we focus on substantive milestones, not timing.”

At What Cost?

Larger public companies are beginning to assess the enormous cost and effort required to convert their transaction processing and financial reporting systems to accommodate IRFS.  If accounting is the language of business, IFRS adopter company personnel, including accounting staff, business managers, executives, and board members, must learn this new foreign language.

Barry C. Melancon, AICPA president and CEO, has called for a permanent, independent funding mechanism for the International Accounting Standards Committee Foundation, the governing body of the IASB.  In the United States, the AICPA will encourage the Securities and Exchange Commission to use part of the current levy on U.S. public companies for accounting standard setting activities as a permanent funding source for the IASB, Melancon said.

Who Will Write the Rules and Who Pays?

There will be 16 IASB standard writers of which only two will be from the United States.  Naturally, the United States will provide the super majority of the IFRS funding.

It’s Time to Get Involved.

IFRS is not an issue best left to the back office bean counters to deal with.  Now is the time for all U.S. financial system stakeholders to understand the movement toward IFRS and consider the possible ramifications, good or bad.  Interested parties should take the following steps:

  • Monitor the progress of the IFRS convergence/conversion and take appropriate action.
  • Learn: Attend relevant seminars on the subject matter
  • Share: Inform others within and without your organization to properly prepare for the transition.
  • Speak out: Let the AICPA, the SEC and others know your views on IFRS, its applicability to U.S. public and private companies, and the proposed implementation timetable.

It is our responsibility to our profession and our clients to stay abreast of this issue and do what we can to make sure that international politics do not trump good sense and that the baby is not discarded with the bathwater.

For more information on IFRS or any other accounting concerns,  please contact:

Templeton & Company hosts Grant Writing Workshops at 2nd Quarter Nonprofit Roundtables

Providing nonprofit leaders in Palm Beach and Broward counties with the opportunity to seek advice and to listen to how similar organizations were able to overcome the obstacles they are currently facing is the goal of Templeton & Company’s Quarterly Nonprofit Roundtable Luncheons. Templeton & Company’s May luncheon series will feature a presentation on Grant Writing by Rick Dunion from the Executive Service Corps of Broward. The Palm Beach event will be held on Wednesday, May 19,from Noon to 1:30 p.m.; the Broward event will be held on Wednesday, May 26, from Noon to 1:30 p.m.

“Our local nonprofit organizations do so much to help the community, we are happy to host events that can provide them with information that could make their jobs a little easier,” said Isabella Lunsford, Tax Partner, Templeton & Company.

For more information on these events, please e-mail


Perception and reality: shedding light on Level 3 assets

In the winter of 2007-2008, sweeping new financial reporting standards were launched – directly into the path of an unforeseen perfect storm.

Known as fair value accounting, these new rules had been years in development.  They were designed to unify global standards and provide greater transparency through market-based, rather than earlier cost-based, methods of valuation.

But no sooner had fair value gone into effect than markets worldwide all but evaporated in the worst economic crisis in over ninety years.  As asset values drifted erratically into what analysts called a “no man’s land,” accurate fair value reporting was put to the test.  And one obscure provision was taken head on by regulators.

We’re talking about Level 3 Inputs as defined by Accounting Standards Codification Topic 820: Fair Value Measurements and Disclosures (ASC 820), the least understood and thorniest area of fair value asset valuation, yet a category now critical to many organizations.

Do a quick internet search and you’ll get millions of hits on Level 3 Inputs, ranging from hard-to-follow bureaucratic explications to biased (often misinformed) broadsides in the blogosphere.  Our purpose here is to sift reality from perception and shed some light on this important area of financial reporting.

First, let’s briefly define terms.

As outlined by the ASC 820 (f/k/a Statement on Financial Accounting Standards No. 157: Fair Value Mearsument), fair value reporting provides for three distinct levels of inputs.

Level 1 Inputs, which in theory comprise the preponderance of most organizations’ portfolios, can be valued using independent observable market inputs: for example, stock prices as reported by the Wall Street Journal on a daily basis.  The idea is to peg an asset’s value to what it would fetch today – right now – in an “orderly transaction” between “willing market participants.”  Those two phrases are important.  Fair Value presumes the absence of compulsion or duress.

Level 2 Inputs don’t have readily-available market inputs, but can be accurately valued using comparable and observable data points.

Level 3 is unique.

This tier was created as a kind of “none of the above” category for perceptible yet hard-to-value assets with no observable inputs.  Generally speaking, Level 3 Inputs either are illiquid or traded so rarely there is no independent market price.  Examples might be private equity investments or certain long-term derivative contracts (typically managed by hedge funds).

To put all this in basic language:  Inputs in Levels 1 and 2 are “mark to market,” but assets in Level 3, where this is no market, are “mark to model.”

Constructing those models is what makes Level 3 asset valuation so exceedingly complex.  To meet fair value disclosure requirements, these valuations involve a combination of management forecasts, various macroeconomic and internal data, sophisticated mathematical models and other proprietary techniques – in other words, experience and specialized expertise from your accounting and audit firm.  Including a coordinated effort from both your accountant and your investment managed to insure that you have obtained full and adequate disclosure regarding those assets.

Sound accounting and audit procedure for Level 3 isn’t astrophysics, but in some respects it’s not far off either.

There’s an irony here.  While Level 3 assets are by definition hard to value, they are often precisely the types of investments one would expect in a widely (and wisely) diversified portfolio.  Many large organizations – foundations, for example – hold significant and sound assets in this fair value tier.  But in the current economic environment, Level 3 also is home to distressed assets such as complicated mortgage-backed securities for which markets seized up and have remained stagnant, making “orderly transactions” arguably impossible.

Thus Level 3 reporting is not only complex, it can be controversial.

What’s at stake for you?

Ultimately an organization’s board, investors, creditors and stakeholders comprise the real-world “jury” for any financial statement.  Credibility is the lynchpin of quality financial statements.  Our experience with a wide range of clients has shown, when done properly, Level 3 financial reporting can ensure a high degree of transparency and confidence going forward.

For more information on Level 3 assets or any other financial concerns, please contact

About the authors:

John TempletonJohn R. Templeton, CPA, CVA

John Templeton is a Partner with Templeton and leads the firm’s Audit and Accounting Services Division. He is an experienced provider of accounting, auditing, and advisory services for private enterprises in a variety of industries including nonprofit, agriculture, manufacturing, and distribution. He is a hands-on professional who approaches each audit with focus and efficiency. He is an advocate for many of the younger members of the firm, and develops and mentors these young associates.


Take the CPA Exam Challenge

One of the main challenges young individuals face when entering the field of accounting is the decision of when to take the CPA Exam, and how to balance the demands of life in the real world. The article below, discusses how our firm, Templeton & Co., a 40-person CPA firm based in South Florida, created a CPA Challenge to engage and encourage our young associates and build team spirit within the firm. To view the article please visit

Rules of engagement: Social Media Guidelines for the CPA firm

Most CPA firms have yet to establish a social media policy, as they are likely considering the best approach to bring social media into the marketing mix.

Truth be told, there is no hard and fast rule on how companies should approach this. The accounting industry is no exception, and faces particular challenges in creating social media plans, such as whether to include client references, and giving tax or other consulting advice in a public forum and later being held responsible for it.

It boils down to encouraging your team to engage, and eventually participate, in the greater dialogue. Firms cannot be seen as educators in the industry if they are not helping clients do their research and discuss issues.

When creating our own social media participation guidelines, Templeton & Co. addressed these concerns to allow our firm to focus on the important end goal, which is to join the conversation and help our clients with information or insight. Rather than “just another” addendum to our employee handbook, we decided to distribute 10 guidelines for social media participation. We were also sure to restate our overall goal: for our firm to engage and participate in a respectful and relevant way within the online community.

1. Transparency: Identify where you work and what your role is. Honesty will be noted in the social media environment.

2. Never represent yourself or the firm in a false or misleading way. All statements must be true and factual, and all claims must be substantiated.

3. Post meaningful, respectful comments.

4. Use common sense and common courtesy. It is best to ask permission to publish or report on conversations meant to be kept private or internal to the firm. (Our firm has a separate privacy and confidentiality agreement when it comes to the discussion of client matters, which we drew attention to when distributing the guidelines.)

5. Stick to your area of expertise and feel free to provide unique, individual perspectives on non-confidential firm activities.

6. When disagreeing with others’ opinions, keep it appropriate and polite. If there is an antagonistic situation, do not get overly defensive and do not disengage from the conversation abruptly. We recommend discussing the situation with the marketing/PR department for advice on ways to disengage from the dialogue in a polite manner that would not reflect poorly on the firm.

7. If writing about the competition, make sure it is diplomatic. Have the facts straight.

8. Never comment on anything related to legal matters, litigation, or any parties that the firm or its clients may be in litigation with.

9. Never participate in social media when the topic being discussed may be considered a crisis situation. Even anonymous comments can be traced back to the firm’s IP address.

10. Be smart about protecting yourself, your privacy and your firm’s confidential information. What you publish is widely accessible and will be around for a long time. Google has a long memory.

To get us started, a handful of people at the firm – ranging from a new college graduate to the managing partner – were selected to be the firm’s “blogging ambassadors.” Not to say that other people within the firm cannot blog, but we have to balance our participation with good judgment.

The key is not to stifle employees from speaking up and participating. The goal is to make it fun and have it tie into firm-wide business development.

Since it’s still so early in social media development, there are no rules set in concrete for all of us to follow. The guidelines Templeton has constructed may, in fact, change over time. However, good common sense on how employees will participate should always come ahead of the actual participation to get the benefits without the unnecessary risk.

As a caveat, a good social media plan should also be created alongside these guidelines to make sure company objectives are met in this exciting area.