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The purpose of this guidance is to clarify the requirements for reconciliation of the IRS Form 990 and the audited financial statements when the revenue and expenses on these two documents differ.
ISSUE: CFC regulations at 5 CFR Part 950.203(a)(3) require that the IRS Form 990 and audit cover the same fiscal period and, if revenue and expenses on the two documents differ, these amounts must be reconciled in an accompanying signed statement by the certified public accountant who completed the audit.
Organizations have asked if they need to have a certified public accountant (CPA) perform the reconciliation of the IRS Form 990 and the audited financial statements if the reconciliation is not completed in the IRS Form 990 or if a financial manager within their organization can perform the reconciliation. The following is a clarification of when a reconciliation of the IRS Form 990 under 5 CFR Part 950.203(a)(3) is required.
The IRS Form 990 and audited financial statements must be reconciled in an accompanying signed statement by the CPA who completed the audit if:
In these instances the IRS Form 990 is either incomplete or in error and an independent third party, the CPA, must reconcile and explain these differences. If the CPA who completed the audit is not available, it is acceptable to use another CPA within the same firm to provide the reconciliation and signed statement.
The only instance when an organization's management may provide a clarification is if Lines 12 and 17 or Line a in Parts IV-A and IV-B do not equal the revenues and expenses in the audited financial statements because certain categories of revenues and expenses on the audited financial statements have to be added together to equal the totals in the IRS Form 990.
We understand that certain categories of revenues and expenses on the audited financial statements may have to be added together to equal the total revenues and expenses that are listed on the IRS Form 990, either on Lines 12 and 17 of Part I or on Lines a of Part IV-A and IV-B. For example, categories of revenues and expenses such as unrestricted, restricted or changes in temporarily restricted net assets may have to be added together to equal the amounts in the IRS Form 990. If this is the case, an appropriate management representative (e.g. officer, director, trustee or chief financial officer) may provide an explanation of the calculation and categories that were used in arriving at the totals on the IRS Form 990 referenced above.
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