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,




Assistant Attorney General

c: Marshall K. Willis