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CHAPTER 15: NOT-FOR-PROFIT ORGANIZATIONS – REGULATORY, TAXATION AND PERFORMANCE ISSUES OUTLINE Number Topic Type/Task Status (re: 13/e) Questions: 15-1 Importance of laws and regulations to auditors Explain 15-1 15-2 State government’s authority over an NPO Identify, explain 15-2 revised 15-3 Federal government’s authority over an NPO Identify, explain 15-2 revised 15-4 Tax-exempt categories Match 15-3 revised 15-5 Public charities and private foundations Distinguish 15-5 15-6 Limitations on political activity and PACs Describe 15-6 15-7 Unrelated business income tax UBIT Explain 15-7 15-8 Intermediate sanctions Define 15-8 15-9 Annual compliance on Form 990 Identify 15-9 15-10 Incorporating documents Identify, explain New Cases: 15-1 Establishing an NPO Recommend 15-1 revised 15-2 UBIT and advertising Evaluate New 15-3 Performance measures of largest NPOs Internet 15-3 revised 15-4 9/11, accountability, and restricted gifts Internet 15-4 revised Exercises/Problems: 15-1 Various Multiple choice 15-1 revised 15-2 Public charity Compute 15-2 revised 15-3 Lobbying expenses Describe 15-3 revised 15-4 UBIT Evaluate 15-4 15-5 Gift shop and UBIT Compute 15-5 revised 15-6 Intermediate sanctions Determine 15-6 15-7 Merger of two human service organizations Identify 15-7 15-8 Performance measures American National Red Cross Compute 15-8 revised 15-1
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CHAPTER 15: NOT-FOR-PROFIT ORGANIZATIONS - REGULATORY AND TAXATION ISSUES Answers to Questions 15-1. Auditors are asked to express an opinion not only on whether an entity presents financial statements that are fair and in accordance with generally accepted accounting principles, but also as to whether the organization has complied with laws and regulations. Apart from the audit function, accountants may be engaged for other attestation services or for the preparation of specialized financial reports to oversight bodies, such as the state and federal governments. 15.2. A state government grants legal existence to a not-for-profit entity in the form of a not- for-profit corporation or as a charitable trust. As a result, the state has a responsibility to monitor the actions of the NPO’s managers, and the NPO has a responsibility to report, as required, to the state government. The public looks to the state to monitor the charitable organization so it operates for the public good. Examples of the activities commonly regulated by states are given in Illustration 15-1; these include licenses to solicit charitable contributions, registration of political lobbyists and activities, and licenses for charitable gaming (e.g., bingo and raffles). 15.3. A tax-exempt entity is only exempt from federal income taxes because it has applied to the Internal Revenue Service for that privilege. Congress gave the I. R. S. the power to grant tax-exempt status to qualifying not-for-profit organizations, and with that power, the responsibility to monitor NPO managers to ensure that the assets the public entrusts to the tax-exempt group are safeguarded and that funds are spent for tax-exempt purposes.
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