Why are Professional Audits so much different than what is currently being done in a small church?
There are several differences. The most compelling is that most churches operate on a CASH BASIS whereas 95% of professional audits are conducted on an ACCRUAL BASIS. Accrual basis is a more complex way of keeping books. Also, most churches do not capitalize their asset purchases, that show the cost of their property, inventory, building, or equipment on the financial report to the congregation. Another one of the main reasons professional audits are so different is because the IRS has strict rules about the classification & reporting of payroll and benefits. If the person appointed by the church board to conduct an internal audit has little or no knowledge, experience or understanding about payroll taxes or their liabilities; then a significant risk exists. By risk I am referring to the probability of error or misstatement. That risk is not limited to how things are classified on the financial report but also there remains a significant risk of over/under-reporting payroll liabilities
