Case Studies in Not-for-Profit Accounting and Auditing

Chapter 15 RECENT ISSUES

LEARNING OBJECTIVES

After you have completed this chapter, you should be able to do the following:

• Identify issues regarding transactions processed by service organizations.
• Identify accounting requirements for programmatic investments.
• Recognize when guidance for group audits may apply.

TECHNICAL BACKGROUND INFORMATION — TRANSACTIONS PROCESSED BY SERVICE ORGANIZATIONS

Not-for-profit entities may use service organizations to process their transactions. Common examples of transactions processed by service organizations are payroll, investment management services, student financial aid payments, and receipts of contributions. Management should design internal control to include these transactions.

Auditors of not-for-profit entities, also referred to as user auditors, should obtain an understanding of how the not-for-profit entity, also referred to as the user entity, uses the services of the service organization. The auditor's documentation of their understanding should address the

• nature of the services provided by the service organization and the significance of those services to the not-for-profit entity, including their effect on the not-for-profit entity's internal control;
• nature and materiality of the transactions processed or accounts or financial reporting processes affected by the service organization;
• degree of interaction between the activities of the service organization and the not-for-profit entity; and
• nature of the relationship ...