When business owners hire third-party accounting firms to manage their finances, they may be provided with an engagement letter. This type of document is new to many business owners, especially those that are outsourcing financial functions for the first time.
Essentially, an accounting engagement letter is an agreement to provide services to a client. The agreement describes the business relationship and sets expectations for both parties in a way that is less formal than a traditional contract.
Business owners frequently wrestle with determining which activities should be outsourced to a freelance bookkeeper or accounting company. Budgetary restrictions can limit a company’s ability to outsource financial tasks, as can concerns over delegating duties. In these instances, it often makes sense to offload tasks that will have the greatest ROI first, and then include others later as means allow.
While many industries have their own accounting nuances, churches utilize entirely different principles and practices. As a result, their financial needs are far more complex than many other similarly sized organizations.
Churches and businesses view revenue generation differently, use revenue differently, and report revenue differently. Churches need money to operate; however, unlike businesses, their primary goal is not to generate revenue. Instead, they collect money to pay for operational expenses, fund campaigns, and support their ministries. Furthermore, a church does not have shareholders, so any excess income is not paid out – it is reinvested to advance its mission. This is reported on a “statement of activities” instead of an income statement like a traditional business.
Accounting is a necessary evil for most business owners – they understand that optimal cash flow requires accurate accounting, but they are often unsure of their own abilities when it comes to keeping their books. Even business owners that outsource their bookkeeping and accounting functions still need to understand accounting principles and practices to oversee the work that is being done on their behalf.
During an audit, financial inaccuracies are typically uncovered that have broader business implications. Whether these inaccuracies are the result of fraud, mistakes, or ignorance, they can have deleterious effects. Internal audits may unearth problems that negatively affect financial statements and financing attempts, while federal tax audits can identify issues that result in costly fines and penalties.
Understanding which inaccuracies auditors find most often provides a foundation for self-imposed accountability. Focusing on areas where problems typically exist equips business owners with the information needed to improve financial accuracy and make smarter business decisions.
Furthermore, exercising extra caution around common problem areas protects the integrity of financial reporting, ensuring that the business’s financial position will be accurately represented to potential investors, existing shareholders, and state and federal authorities.
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