Form 990, Prior Year, Page 1 reporting, when last year's ending balance sheet from 2007 F990 is wrong
Total Views: 47
Re: 990s --Normally, the fund balance at the end of previous year + net income should = fund balance at the end of the current year. When this is not so, a prior period adjustment is needed. In such a case, do I report on page 1 in the Prior Year column, the accurate balance sheet amounts OR the Balance Sheet amounts as reported on the Balance Sheet of the prior yr 990?
Answer
You don't say why the fund balance is different. Was an entry posted to fund balance to correct a prior period error or was an entry posted to fund balance that should not have been posted (or did the client not post prior year end entries that were used by the tax preparer)?
Comment
Good point, IRMN. If the client forgot to post what the accountant did a year ago (and it's the same accountant, who knows what entry should have been posted) that makes it pretty easy, just to use the figures the accountant had in the first place, and not the client's figures which ignored the final JE of the prior year.
Otherwise, who knows?
Answer
First, the quickest way to the front of the audit line, for nonprofits, is to file an amendment. Generally you would only do that, if the state audits and requires an amendment be filed. Then, you want to bone up your workpapers and clear your calendar, because the IRS will soon be knocking.
Anyway, you need to have a VERY good reason to call it a prior period adjustment. Rather than immediately assuming that you need one, figure out what gave rise to the difference. It is almost always a misclassification. Sometimes it might be something like a pledge that didn't come through. Either way, it should probably be handled in the current period, not as a ppa. Even if it is clear that it really is a ppa, you might want to run it through the current operations numbers, to lower your risk of audit. In my opinion, a ppa is only a good option in 1% of the cases and you better document till your pen runs dry. The essentials of a ppa is that you are never reporting the item as a contribution/expenditure and you are taking it directly to the net funds account. Honestly, the only time I've ever done it was when I discovered that the clients quickbooks were corrupted and they had self prepared all their prior years and never made their accounting records match what was reported on the tax return; an extremely difficult situation.
All that being said, you would report it on page one in the current year column, on the other adjustment to net funds line. The prior year column must match the prior year tax return. The balance sheet beginning numbers should match the prior year tax return and the current year balance sheet numbers will match the current year financials, which will include the ppa.
Answer
Thank you all for the discussion. I appreciate it very much.
I have determined that page 1 of the 990 prior year balance sheet SHOULD match filed last year's ending balance sheet, even if the fund balance as stated was incorrect.
Note: On the 990EZ there is a place of Other Changes to Fund Balances but on Page 1 of the new 990 there is no place for PPAs or other changes to prior fund balances, although on page one of the old 990 there was a place for it.
On the input screen for the Balance Sheet there is a field for PPAs. In my experience the most common reason for them is errors in bookkeeping over multiple years (and sometimes they drag on for multiple years because some preparers ignore them). Those errors often include bookkeepers not incorporating into the books the Journal Entries from prior year tax returns.
Thanks, again.
Comment
I guess you have a couple of choices. One would be to amend the old 990 to make the balance sheet right, and then start the new year right.
A 2nd choice would be to start the new year with the wrong figure that agrees to the end of the old year (not bothering to amend the old year). Somewhere you would have to plug a "miscellaneous income" or "miscellaneous expense" item or possibly "miscellaneous fund balance increase/decrease," and explain that the miscellaneous plug is to get the end of this year to agree to reality, because there was an error at the end of last year.
I do know that from 1120S's where there was a problem with the beginning retained earnings, it had been a big no-no to make the beginning balance of the current year "magically correct" when the old year had been wrong. IRS and/or various states got into a panic about it. The beginning balance sheet of the current year, had better equal the ending balance sheet of the old year, to keep governments from going wild.