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Nonprofit Advisor L

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
April 2010
Vol. 3 • No. 3

L
6851 Oak Hall Lane Suite 300 Columbia, MD 21045 410-423-4800 Fax 410-381-5538 www.uhyllp-us.com

A Refresher
Upcoming Changes to
Auditors’ Communications Spousal Travel
with Management Expense
by Jennine Anderson
by Matt Duvall

It seems like just


yesterday that the
Statement on Audit-
before we switch to International
Accounting Standards and com-
pletely turn our world upside-
S ometimes it’s
a good idea to
go back over old
ing Standards (SAS) down, the Auditing Standards material to refresh
No. 112 was the hot Board has decided to offer us a our memory of it.
topic of conversa- taste of consistency when it comes This is particularly
tion among audi- to auditors communicating internal true with compen-
tors, management control issues to management: a sation matters,
and audit committees. fun topic, I know, but at least especially in light of the required
they’re trying ... disclosures on the new Form 990.
The implementation of that SAS Our topic this time is tax treatment
resulted in auditors reporting Effective for fiscal years ending after of travel expenses for spouses and
many more control deficiencies December 15, 2009, the definitions other companions.
than in the past. Everyone was of the deficiency categories used in
upset: the auditors because of all management letters will be chang- Travel expenses paid or incurred by
the time it took to write the letters ing to be consistent with the terms an organization for a spouse, depend-
used by the Public Company ent or other individual accompany-
and the organizations because of
Accounting Oversight Board by the ing the taxpayer on a business trip
the content of the letters. Now,
implementation of SAS No. 115. The must be reported as income (with no
rules are changing again in the
new SAS replaces previously issued deduction permitted), unless all of
form of SAS No. 115, Communica-
the following requirements are met
tion of Internal Control Related SAS No. 112 which provided guid-
by the accompanying person:
Matters Identified in an Audit. This ance to enhance the auditor’s ability
time, however, the change should to evaluate deficiencies in internal continued on page 2
not be so disruptive for organiza- control identified during a financial
tions and auditors. One of the rea- statement audit.
sons for this change is to improve
The notable changes brought about
PREFER TO GET YOUR
consistency in terminology. NEWS DIGITALLY?
by SAS No. 115 deal with the defini-
All too often individuals in the tions of a “significant deficiency” Sign up to receive our newsletter
accounting industry have to be and a “material weakness.” Under through email. Just email Kathy
familiar with multiple meanings SAS No. 112, the definition of a sig- at koconnell@uhy-us.com, and
for terms depending on the context nificant deficiency included the she’ll take care of the rest.
in which the term is used. Well, continued on page 2

UHY LLP brings specialists in nonprofit solutions in accounting and tax.


April 2010
Vol. 3 • No. 3

Spousal Travel Expense be required to withhold tax on any herself and her husband on a busi-
amount which is treated as compensa- ness trip. Kim’s husband attends a
continued from page 1
tion because it does not serve the orga- business lunch but serves no busi-
1. The accompanying person is an nization’s bona fide business interest. ness purpose in doing so and doesn’t
employee of the taxpayer; Prior to 1994, the only requirement meet the three requirements. Kim’s
for the deduction of the taxpayer’s cost of the trip without her husband
2. The travel of the accompanying would have been $350. Hence, Kim
spouse, dependent or other individ-
person is for a bona fide business may deduct (or not include in
ual accompanying the taxpayer on a
purpose; and income if reimbursed by her employ-
business trip was that the presence
3. The expenses would otherwise be of the accompanying person serve a er) only $350 for her business travel
deductible by the accompanying bona fide business purpose. The IRS expenses. If reimbursed $500 from
person. felt that taxpayers were abusing this her employer, Kim would have to
rule and added requirements #1 and report $150 as income.
If there is no business purpose to justi-
fy the accompanying person, the cost #3 above to significantly limit one’s Keep these rules in mind when eval-
attributable to that person would be ability to deduct travel expenses for uating how spousal travel expenses
included in their income (or the tax- an accompanying person. should be treated with respect to
payer’s income with no travel deduc- Here’s an example to consider: Kim employee compensation reporting
tion allowed). The organization would incurs $500 in travel expenses for on the W-2 and the Form 990.

Upcoming Changes to ment of the financial statements will


Auditors’ Communications not be prevented or detected by the WE HAVE YOUR
with Management entity’s internal control.” SAS No. FINANCIAL SOLUTIONS
115 removes the phrase “more than
continued from page 1
a remote likelihood” and states that UHY has a full staff of account-
phrase, “there is more than a with a material weakness there is a ing professionals who can pro-
remote likelihood that a misstate- “reasonable possibility that a mate- vide excellent support to your
ment of the entity’s financial state- rial misstatement of the entity’s accounting department. If you
ments that is more than inconse- financial statements will not be pre- need to supplement your staff
quential will not be prevented or vented or detected and corrected on with accounting clerks, book-
detected by the entity’s internal a timely basis.” The ASB further keepers or experienced CPAs,
control.” SAS No. 115 removes this clarifies that a “reasonable possibili- just call us and we’ll help.
phrase and states that a significant ty” is defined as either reasonably We also provide consultation
deficiency is simply less severe than possible or probable. services, design of internal
a material weakness, yet important controls, operating procedures
enough to merit attention by those You are no doubt wondering how
and accounting systems.
charged with governance. This these new definitions will affect
change will permit the auditor to what your auditor will report after
use professional judgment in deter- your next audit. Well, rather than
mining whether a deficiency should applying a checklist of possible
be classified as significant. examples for significant deficien-
cies, SAS No. 115 allows more room
SAS No. 112 defined a material for discussion and professional
weakness as a “significant deficien- judgment in making the determina-
cy that results in more than a remote tion of what gets reported. So, let
likelihood that a material misstate- the discussions begin!

The statements contained herein are provided for informational purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal,
state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. Furthermore, such statements are not presented or intended as, and should not be taken
or assumed to constitute legal advice of any nature, for which advice it is recommended that you consult your own legal counselors or professionals.
UHY Advisors, Inc., provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc.,
and its subsidiary entities offer services from offices across the United States. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent
CPA firm that performs attest services. UHY Advisors, Inc., and UHY LLP are independent U.S. members of Urbach Hacker Young International Limited.