September 13, 2006
Parable of the Finances
I appreciate it when Jesus explains His parables, because quite frankly, without the explanation I’d probably be one of those disciples He refers to as ‘dull’. Right now I’m pondering a financial parable and I’d give my left leg untangle its meaning. The church CPA released a balance sheet covering the last seven months of financial activity. The problem parable is the last paragraph of her cover letter which states, “Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles. If the omitted disclosures were included in the financial statement, they might influence the user’s conclusions about XYZ Church’s financial position, results of operation, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters.” (I’ve edited out the church name). So, how’s this sound? ‘Management’ must refer to the church staff and elders. ‘User’ is probably the reader. ‘Those who are not informed’ could be members or those of us who are thought of as dull. I’m guessing that the meaning of the parable is this: To keep the members of the congregation from knowing the complete financial situation, the elders and staff are omitting information because it might influence our conclusions. How am I doing so far?
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Gail;
----You're doing pretty good so far. In my twenty two years as a CPA, I have only heard two financial statement users express concern over the possibility of missing information because of the presence of the disclosure disclaimer (that is the part of the cover letter you quoted.) The other one was a bank. But that indicates just how disregarded the disclaimer is, outside a court of law.
----In reality, there is much more information that has a bearing on the perceptions that can be drawn from financial statements. The information regards such matters as what basic accounting principles were used, the manner of estimating any amounts in the statements that needed estimation, methods used for depreciation, interest rates and due dates of loans, the presence and amounts of any contingent liabilities, the presence any related party transactions, the presence of any litigation and possible litigation, etc., etc., etc. These matters can make a real difference in the understanding of the entity's financial standing. But, as you can imagine, they also can be time consuming to present. The common solution is to throw a disclaimer in the cover letter and continue with life as normal.
----So you have pointed out a real truth that lies in the cluttered center of technicality. There could be hidden in the business of the elders such concerns as the possibility of a crippling lawsuit (two churches are in litigation for communicating sins of members to the whole church, another church had a near brush with a lawsuit when it communicated several lies about a couple to its members.) Such litigation can bring an entitiy to crippled knees (slightly different from praying knees.)
----Knowing the "management" to whom you refer, I hold little doubt that these men were even aware of the disclaimer's presence in the cover letter. I doubt if they were aware of the possibility of there being any more reportable information beyond the numbers. None of them strike me as being that mentally acute. So I do not believe that they realize they have given financial statements to people that reveal their inability to completely use them on the very first page.
----But I do highly suspect that the ministers' compensation is purposefully hidden in the accumulation of a variety of expences. And that shadow creates suspision about what could be in the missing disclosures.
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