Washington (July 29, 2004) -- A congressional plan to impose tougher auditing requirements on public charities and other tax-exempt organizations is drawing sharp objections from the nonprofit community and the accountants who audit their financial records.

A key element in the proposal drafted by staffers at the Senate Finance Committee calls for exempt organizations with annual gross receipts of $250,000 or more to secure independent audits of their financial statements -- a requirement that nonprofit groups say would impose a significant hardship on small charities.

In a statement filed with the committee in response to the discussion draft, officials at the Association of Fundraising Professionals told Congress that a $250,000 threshold for requiring audits is “far too low,” and that the cost of these audits would drain many charities of badly needed funds.

Noting that CPA firms currently charge $25,000 or more to perform an independent audit, the AFP said that “10 percent of an organization’s $250,000 in revenues could be required to meet this obligation.”

A separate provision in the proposal that would require nonprofits to rotate auditors every five years produced equally strong objections from exempt organizations, several of which noted that Congress considered and rejected an auditor rotation mandate as part of the Sarbanes-Oxley Act.

Forcing charities to change audit firms every five years would create significant problems for exempt organizations “in small states with few firms knowledgeable about the nonprofit sector,” National Council of Nonprofit Associations executive director Audrey Alvarado told the committee. The result could be inflated accounting costs for nonprofits because “rebidding on audits often leads to increases in the cost from 25 percent and upward,” Alvarado argued.

The American Institute of CPAs voiced concerns of its own about the auditor rotation proposal, noting that rules forcing exempt organizations to change audit firms periodically “may do more harm than good” because of the “limited number of audit firms with exempt organization expertise” in many parts of the country.

“Expertise and experience in this niche practice are more important than partner or firm rotation,” AICPA Tax Executive Committee chair Robert Zarzar said in the institute’s formal comments on the plan.

-- Ken Rankin

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