Subject: IFCSS HQ Treasurer's Memo

From: IFCSS HQ <[email-masked]>
Date: Tue, 16 Nov 1993 13:20:42 -0500

Date:   November 16, 1993
From: Jiang Zuihong, the IFCSS HQ Treasurer
To: Financial Inspection Team, Council of IFCSS
Re: Response to the memo from Inspection Team concerning the
format of  financial statements

Thank you for your input and suggestions concerning my work. Last
time I tried to answer your concerns while you were in here in
the HQ office. Because of the technical nature of the matter and
limited time, I may not have made things clearer to you. Now I am
taking time to write them down for your reference. For the
convenience of clarity, I will quote each of your questions, and
then provide my answers to it in the order of your memo. Please
let me know if you have further questions. 

YOUR MEMO BEGINS WITH THE PARAGRAPH: "Our opinion of the
financial statements for FY92-93 and FY93-94(First Quarter)
submitted for inspection team is presented below for your
consideration and cooperation. In order to complete a whole set
of financial statements for further examination, the listed
information as follows is needed.  Certainly we assume that you
are familiar with the components of the financial statements--
income statement, balance sheet, and cash flow."

MEMO QUESTION 1: Cash flow statements for each account.

ANSWER:  There are no such things as "cash flow statements for
each account. You may be confused by the concept of business
entity.  Financial accounting is concerned with recording and
reporting the economic activity. Consequently financial records
and reports are prepared for each separate entity. IFCSS as a
whole is one such  reporting entity, but for those IFCSS accounts
(sometimes referred as cash accounts) are only  asset accounts of
IFCSS.  We may have different reports for different programs such
as NED or CSPA program for our internal reporting purpose,
however IFCSS is the only reporting entity concerning the
external financial reports.  After talking to Zhou Hongguang, he
indicated that Council wants the external reporting format for
those reports submitted to Council instead of the existing format
which was formally adopted by the Fourth-term Council.

   Let me explain why some companies need to have cash flow
statement. The major purpose of the statement of cash flow is to
provide a detailed presentation of results of financial
management, as distinguished from operating management. The
statement summarize the financing and investing activities of the
enterprises.  The financing activities means those activities
such as sales of the company's own stock, borrowing or lending
money.  The investing activities means those activities such as
purchasing of other company's stock or building or equipment. As
you may probably see,  IFCSS is entirely different from those
economic entities in nature. We have no such activities in our
operating management, though we did purchases some equipments.
But since these expenditures are very limited, there is no point
that we need the cash flow statement to supplement the income
statement and balance sheet.  We always prepare the statement of
cash flow for IFCSS 's final external annual report, but cash
flow statements for each account  for periodic reports are
certainly inapplicable.
 
MEMO QUESTION 2:  Standard balance sheet and income statement.
Balance sheets and income statements should be prepared strictly
according to generally acceptable accounting principles, which
means all of the necessary and routine categories ought to be
included.  For example, Liabilities should include long term and
short term liabilities such as A/P, N/P; Income statement should
also contain Beginning and End Balance.

ANSWER: What you have here are a list of necessary and routine
categories which ought to be included in such as A/P (Account
payable), N/P (Note's payable).  However, many routine items do
not exist because of IFCSS's typical type and size of the
business.  We don't need include those zero value item in the
financial statement. But I was told by one member of the
inspection team that even we don't have those items such as N/P
and I still had to include those items and put zero value in the
financial statements.  This is not accepted way to present-day
financial statements.

According to the memo, income statement should also contain
beginning and ending balance.  Income statement itself has no
beginning and ending balance.  The bottom line item in income
statement is net income.  What they real mean here is adding
beginning and ending fund balance after the net income line.

MEMO QUESTION 3: Agreed fund balance (both Beginning and end) for
each account.  Note fund balance in the statement must be agreed
in accordance with time period assumption.

ANSWER: We do present the fund balance in balance sheet (external
reports), but not for "each account". Again here, there is the
confusion over the basic concept of reporting entity. 

MEMO QUESTION 4: A complete list of fixed assets and other
noncurrent assets.  The list should also be added as a part of
Liabilities in Balance Sheet.  In the same manner, a depreciation
plan (including depreciation method) should also be made along
with it.

ANSWER: A complete list of fixed assets is available at IFCSS HQ. 
IFCSS has no other non-current asset.  The memo said that the
list of fixed assets should be added as a part of liabilities in
balance.  This is a unforgiven error for those who want to
express an opinion about the financial statement.  Fixed assets
only belong to asset section not liabilities section in balance
sheet. (Over this and most of your requests---allow me to say
fairly and please don't be offended by my frankness---you really
need to seek professional advice on the "ABCs" in accounting).

MEMO QUESTION 5: Explanatory Notes.  These notes are desired for
any entry that may cause difficulty and/or confusion in
understanding the contents of the entries. For example,
miscellaneous revenues and expenses.

ANSWER: Explanatory notes will be provided where they are
appropriate according to general accepted accounting practices.

MEMO QUESTION 6: Copies for each Form 990.  It is understood well
that Form 990 for the current year won't be released till 15th of
this month.  Your prompt cooperation is appreciated.

ANSWER: Form 990 (Information return for non-profit organization)
for the year 1990, 1991 and 1992 are available at IFCSS HQ. Form
990 for 1993 has not been filed yet.  

MEMO QUESTION 7: A copy of registration document under Maryland
Laws pertaining to Nonprofit Organization.

ANSWER: Registration document under Maryland Laws is available at
IFCSS HQ.

MEMO QUESTION 8: A complete report especially for CSPA and 5th
Congress with every orginal invoice and receipt.

ANSWER: The original report for CSPA and 5th Congress have been
submitted to the inspection team.  Any suggestion concerning the
format and line item are welcome since those report are only for
internal purpose, there is much more flexibility.  The original
invoices and receipts are available at IFCSS HQ.

MEMO QUESTION 9: Copies of leased assets such as office,
equipments.

ANSWER:  IFCSS has no leased asset. 

MEMO QUESTION 10: Total equity (both tangible and intangible) of
IFCSS.  Note this doesn't refer to cash only.

ANSWER: Here is another confusion. In financial statements equity
section includes primarily capital stock and retained earnings
but not cash account. Cash account is presented in asset section
of balance sheet.  I don't understand how equity could refer to
cash as mentioned in the memo, and what is the meaning of
"tangible and intangible" equity.     

Currently, I am working on the preparation of the information for
Form 990 return and compilation of external financial reports. 
Those reports should be available within two month.

We all appreciate the effort and enthusiasm inspection team put
in this auditing.  It is also recognized that Council financial
committee's internal control function is important.  Internal
control function includes those things such as if certain expense
is appropriately approved in the budget or by designated
authority, if the procedure for reimbursement complied with
financial regulations, if there is any unlawful or illegal
activity existing, etc.   However, To express opinion or to make
a judgement on whether financial statement is presented fairly
according to genernally acceptable accounting principles is
really a professional job which should be done by the certified
public accountant.  Only their opinion is publicly recognized and
legitimate.  This is the normal practice in the business world. 
One point has to be made is that there are some universal
principles every business has to follow.  Since IFCSS is
operating in such business environment, It should also follow
those laws.  I think that is one aspect of perfection and
professionalization of IFCSS's operation in the future.