Could a Kentucky professional fundraiser file a review or compilation instead of an audit?

Plain-English summary

In 1993, Kentucky's Attorney General concluded that professional fundraisers and solicitors had to submit an audit under KRS 367.655(2)(f). A compilation or a review would not satisfy the statute's requirement for an audited consolidated financial report. The opinion explained that an audit examined accounting evidence and provided an opinion or disclaimer about whether the statements followed generally accepted accounting principles; a review gave limited assurance, and a compilation supplied none.

The statute quoted in the opinion called for an independent public accountant and specified a certified public accountant when total profits exceeded $250,000 for the fiscal year or part of it. The AG said the audit requirement served the office's need to detect possible misappropriation of fundraising proceeds.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

Professional fundraisers and solicitors

The AG read the report requirement as an audit. The quoted statute required information about fundraising revenue, costs, distributions, and the share actually paid to the charity.

Accountants preparing the report

The opinion distinguished the three accounting services by the assurance they provided. An audit involved an objective examination of evidence; a review did not gather audit evidence or assess internal control; a compilation presented management's information without verification or assurance. The statutory accountant qualification changed at the $250,000 total-profits threshold described in the opinion.

Common questions

Would a reviewed financial statement satisfy the fundraising report rule?

No. The AG said a review offered only limited assurance and lacked the audit examination required by KRS 367.655(2)(f).

Would a compilation satisfy it?

No. The opinion described a compilation as presenting management's information without the accountant verifying it or providing assurance.

When did the 1993 statute require a certified public accountant?

The quoted provision required a CPA audit if the fundraiser's or solicitor's total profits exceeded $250,000 for the fiscal year or part of it. The opinion did not supply a different threshold.

Background and statutory framework

State Board of Accountancy Executive Director Susan Stopher asked what kind of report KRS 367.655(2)(f) demanded. The AG compared an audit, review, and compilation and concluded that only an audit met the statute's purpose and wording. The opinion cited KRS 446.010(15) when discussing generally accepted accounting principles.

Citations and references

• KRS 367.655(2)(f): audited consolidated financial report and accountant qualification.
• KRS 446.010(15): accounting-principles definition cited by the AG.

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG93-044.htm

Original opinion text

OAG 93-44

June 2, 1993

Ms. Susan Stopher

Executive Director

State Board of Accountancy

332 W. Broadway, Suite 310

Louisville, KY 40202

Re: Audited financial statement

Dear Ms. Stopher:

We received your letter requesting clarification of the nature of the report required by KRS 367.655(2)(f). We conclude that the report that is required is an audit, not a compilation or a review.

Kentucky Revised Statute 367.655(2)(f) requires that a professional fundraiser or professional solicitor submit to the Attorney General a statement containing:

[a] copy of a financial statement in a consolidated report audited by an independent public accountant for the professional fund raiser's or professional solicitor's immediately preceding fiscal year or, if none, for the present fiscal year or part thereof, provided that if total profits exceed two hundred fifty thousand dollars ($250,000) for the fiscal year or part thereof, the report shall be audited by a certified public accountant.

An audit is an objective examination of evidence of a specific entity for the purpose of expressing an opinion or disclaimer regarding whether or not the evidence conforms to generally accepted accounting principles as defined under KRS 446.010(15). Woelfel, The Desktop Encyclopedia of Corporate Finance & Accounting, p. 55, 1987. Some of the information looked at for this report shall be:

Information as to the total profits and revenue from all of the fund-raising activities including the balance sheet, kind and amount of funds raised, costs and expenses incidental thereto, allocation or disbursement of funds raised, and percent of funds raised by the professional fund raiser or professional solicitor on behalf of the charitable organization which are actually paid to the charitable organization for use in accomplishing the charitable purpose.

KRS 367.655(2)(f).

The audit opinion will indicate whether the "financial statements present fairly the financial position, results of operations, and changes in financial position for the year-ended in conformity with generally accepted accounting principles applied on a consistent basis." Siegel & Shim, Barron's Accounting Handbook, p. 271, 1990. The report issued by the accountant will provide assurances to the user of financial statements.

A review is not as in depth as an audit. It does not include an appraisal of internal control, nor gather audit evidence. A review just provides the accountant with a basis for expressing limited assurances that no material modifications to the financial statements should be made. Desktop Encyclopedia at 456. A review does not require an examination in accordance with generally accepted auditing standards. Barron's at 603.

A compilation requires even less than a review. It is just the presentation of information that is the representation of the managers or owners without any kind of assurance. The accountant is not required to make inquiries or perform any procedures to verify any of the information supplied by the client. Desktop Encyclopedia at 110. All the accountant does is read compiled statements to make sure they are in the appropriate form and without any obvious material errors. Barron's at 319.

Since the purpose behind the requirement in KRS 367.655 is to make the Attorney General's office aware if funds are being misappropriated, neither a review or compilation would be sufficient. A thorough examination of a client's accounting records to substantiate the operations of the business and an assurance that the procedure follows the generally accepted accounting principles is necessary to meet the objective of the statute.

I hope that this has been of some assistance to you.

Yours truly,

CHRIS GORMAN

ATTORNEY GENERAL

BY: ANN LOUISE CHEUVRONT

Assistant Attorney General

c: Marshall K. Willis