a.
Ascertain the given performance measures using the Form 990.
a.
Explanation of Solution
Not-for Profit Organization: A not for profit organization, is a business type operated by individuals or specific groups of people to carry out the beneficial activities to the society. They do not focus on profit generation.
Form 990: The Form 990 is filed by the not for profit organizations with tax-exempt status, to disclose their activities to the public and the government. They are filed for a period of three years.
The various performance measures are:
- Compute the
current ratio :
The current ratio is 6.13 times; this indicates the Organization FA is liquid with six times assets over liabilities.
- Compute the Revenues over expenses:
The revenues over expenses ratio is 1.01 times; this indicates the Organization FA is able to meet its expenses with the revenue being generated.
- Compute the program expenses over total expenses:
The program expenses over total expenses ratio is 0.99 times; this indicates Organization FA is able to fund its program nearly 99% with the funds generated for the program and uses only 1% of funds from public support.
- Compute the fund raising expenses over public support:
The fund raising expenses over public support is 0.01 times; indicates Organization FA spends $0.01 for every dollar in fund raising.
b.
Ascertain the given performance measures using the financial statements.
b.
Explanation of Solution
The various performance measures are:
- Compute the current ratio:
The current ratio is 5.60 times.
- Compute the Revenues over expenses:
The revenues over expenses ratio is 1.00 time.
- Compute the program expenses over total expenses:
The program expenses over total expenses ratio is 0.99 times.
- Compute the fund raising expenses over public support:
The fund raising expenses over public support is 0.01 times.
There is a variance in the amounts being used to compute the performance measures, however the result is the same under both the requirements.
c.
Provide the various advantages of using audited financial statements instead of the IRS Form 990 while analyzing the financial performance.
c.
Explanation of Solution
Audit report: This is a summarized report issued by the auditor on the governmental activities, business-type activities, and the funds of the entity, and provides an opinion on the reliability and validity of these activities of the entity.
The audited financial statements are more authentic source of information for the calculation of the various financial performance measures as they are prepared with adherence to the accounting standards and verified by a professional for its fairness and truthful representation of the information.
Want to see more full solutions like this?
Chapter 13 Solutions
Accounting For Governmental & Nonprofit Entities
- An unqualified opinion on the financial statements of a local government means that all statements in the comprehensive annual financial report (CAFR) have been audited and conform with GAAP." Do you agree or disagree? Why? Describe the difficulty in comparing the financial performance of a not-for-profit organization to other similar organizations. What benchmarks are available to assist in this task? Describe the treatment of a not-for-profit, nongovernmental foundation that is related to a public university under GASB standards. What are the benefits to a state or local government of establishing an audit committee?arrow_forwardGAO Auditor Independence. The GAO reporting standards for performance audits statethat each report should include “recommendations for action to correct the problem areasand to improve operations.” For example, an audit of the Washington Metropolitan AreaTransit Authority found management decision deficiencies affecting some $230 millionin federal funds. The GAO auditors recommended that the transit authority could improveits management control over rail car procurement through better enforcement of contractrequirements and development of a master plan to test cars.Suppose the transit authority accepted and implemented specific recommendations madeby the GAO auditors.Required:Do you believe these events would be enough to impair the independence of the GAO auditors in a subsequent audit of the transit authority? Explain and tell whether it makes any difference to you that the same or different person performs both the first and subsequent auditsarrow_forwardChoose the correct. Which of the following is true about the management’s discussion and analysis (MD&A)?a. It is an optional addition to the comprehensive annual financial report, but the GASB encourages its inclusion.b. It adds a verbal explanation for the numbers and trends presented in the financial statements.c. It appears at the very end of a government’s comprehensive annual financial report.d. It replaces a portion of the fund financial statements traditionally presented by a state or local government.arrow_forward
- Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different for-profit and not-for-profit entities. Two years ago, Luisa Mellina, Ginnians partner in charge of operations, became concerned about the amount of audit time required by not-for-profit entities. As a result, she instituted a series of training programs focusing on the auditing of not-forprofit entities. Now, she would like to see if the training seemed to work. So, she ran a multiple regression on 22 months of data for Ginnian for three variables: the total monthly cost of audit professional time, the number of not-for-profit audits, and the hours of training in the audit of not-for-profit entities. The following printout was obtained: Required: 1. Write out the cost equation for Ginnians audit professional time. 2. If Ginnian expects to have 9 audits of not-for-profits next month and expects that audit professionals will have a total of 130 hours of not-for-profit training, what is the anticipated cost of professional time? 3. Are the hours spent auditing not-for-profit entities positively or negatively correlated with audit professional costs? Is percentage of experienced team members positively or negatively correlated with audit professional cost? 4. What does R2 mean in this equation? Overall, what is your evaluation of the cost equation that was developed for the cost of audit professionals?arrow_forwardWhich of the following is true about the management’s discussion and analysis (MD&A)? It is an optional addition to the comprehensive annual financial report, but the GASB encourages its inclusion. It adds a verbal explanation for the numbers and trends presented in the financial statements. It appears at the very end of a government’s comprehensive annual financial report. It replaces a portion of the fund financial statements traditionally presented by a state or local government.arrow_forwardWhich of the following is the least important consideration for a governmental auditor whoneeds to be objective when auditing and reporting on an agency’s achievement of programgoals?a. Measure the actual output results of agency activities.b. Compare the agency’s actual output results to quantitative goal standards.c. Perform a comprehensive review of management controls.d. Determine quantitative standards that describe goals the agency was supposed to achieve.arrow_forward
- At the completion of every audit, Roger Morris, CPA, calculates alarge number of ratios and trends for comparison with industry averages and prior-yearcalculations. He believes the calculations are worth the relatively small cost of doing thembecause they provide him with an excellent overview of the client’s operations. If the ratiosare out of line, Morris discusses the reasons with the client and often makes suggestionson how to bring the ratio back in line in the future. In some cases, these discussions withmanagement have been the basis for management consulting engagements. Discuss themajor strengths and shortcomings in Morris’s use of ratio and trend analysis.arrow_forwardThe Office of the Auditor General is mandated to conduct audits of all public institutions inJamaica. It has been observed that the same observations and recommendations are madeeach year in the Auditor General’s Reports concerning increased misuse and misapplicationof public funds.Following the establishment of new parish councils in some parishes around the countryfour years ago, there is concern that the trend of misuse and misapplication of public fundsmay be experienced in these newly established councils just like is the case with theexisting councils. The Ministry responsible for local government has decided thatconsultants should be engaged to hold workshops with the controlling officers of the newlyestablished councils on the importance of transparency and accountability in the use ofpublic funds and the importance of internal controls systems. You work for a consultancyfirm that has been engaged to run these workshops and all the new districts around thecountry. The lead…arrow_forwardThe Office of the Auditor General is mandated to conduct audits of all public institutions inJamaica. It has been observed that the same observations and recommendations are madeeach year in the Auditor General’s Reports concerning increased misuse and misapplicationof public funds.Following the establishment of new parish councils in some parishes around the countryfour years ago, there is concern that the trend of misuse and misapplication of public fundsmay be experienced in these newly established councils just like is the case with theexisting councils. The Ministry responsible for local government has decided thatconsultants should be engaged to hold workshops with the controlling officers of the newlyestablished councils on the importance of transparency and accountability in the use ofpublic funds and the importance of internal controls systems. You work for a consultancyfirm that has been engaged to run these workshops and all the new districts around thecountry. The lead…arrow_forward
- The accountability instrument refers to the answer choices as below, except A.fiskal / fiscal B.Program / program C.pengurusan / management D.dasar / policyarrow_forwardWhich of the following BEST (select one) describes why auditing can be viewed as a continuous cyclical process? a) The audit plan is used to develop the audit schedule. b) Many audit departments review the same areas each year as part of the audit plan. c) Historical and current information from audits should be incorporated into the risk assessment. d) Businesses go through economic cycles, so audit plans must go through cycles.arrow_forwardStan is auditing First Financial Services and would like to use financial ratios to test the ability of First Financial Services to meet its current obligations. Identify two ratios that would help Stan in this task. Indicate how each ratio is calculated and what a high ratio would signify to Stan.arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningAccounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub