Generally accepted accounting principles (GAAP) currently allow museums and similar institutions great flexibility in accounting for works of art, historical treasures, and similar items (referred to in this article as "collection items"). This results in museums adopting widely varying accounting policies regarding their collections and contributions of collection items. The FASB's exposure draft (ED), Accounting for Contributions Received and Contributions Made and Capitalization of Works of Art, Historical Treasures, and Similar Assets, is an attempt by the Board to standardize practice in this area. Our article "Accounting for Contributions and Collection Items," in the July 1991 The CPA Journal, analyzes the ED and related accounting issues. This article considers the auditor's performance and reporting responsibilities with respect to the collection and current contributions of collection items in an audit of a museum or similar institution's financial statements.
Responsibilities Relating to Contributions and Collections
The AICPA Audit and Accounting Guide, Audits of Certain Nonprofit Organizations, provides examples of procedures the auditor should consider in auditing gifts of "securities, materials, facilities, and other nonmonetary items" and of "collections of works of art and similar items."
With respect to contributed collection items, the suggested procedures include:
* "Obtaining a listing of recorded amounts, including name of donor, type of donation, gross valuation, amount paid in cash (in the case of a bargain purchase), and the net contribution, recorded by source or activity."
* "For other items (other than donated securities), obtaining reasonable assurance that the values placed on the donated items are comparable to prices paid for similar items recently acquired, are consistent with appropriate market rates, or are based on a reasonable appraisal or other expert valuation. (See SAS 11, Using the Work of a Specialist.)"
* "Reviewing receiving reports and other evidence supporting the donated items to obtain reasonable assurance that they were properly recorded."
* "With respect to donated collections (such as works of art, books, and botanical specimens), reading the organization's correspondence and any newspaper clippings (the nonprofit organization may keep a file of such items) for gifts of this nature, physically inspecting such gifts, and obtaining reasonable assurance that, if applicable, they have been properly recorded and disclosed."
* "Requesting confirmation from donors regarding the description and quantities of donated items and any restrictions imposed on them."
With respect to collections of works of art and similar items (again, presumably whether recognized as assets or not), the Guide presents examples of auditing procedures that the auditor should consider:
* "Evaluating the procedures for recording accessions and deaccessions and inspecting approvals or acknowledgments to donors of the acquired items."
* "Obtaining reasonable assurance that the valuation basis on the balance sheet is appropriate and that such basis is disclosed."
* "Evaluating the procedures for controlling the collections and for periodically conducting a physical inventory of them. If the value of the collection is included in the financial statements, the auditor should consider observing the physical inventory or otherwise obtaining reasonable assurance that the collections exist."
With regard to the second item, if the collection is not recognized, the appropriate valuation basis would be zero, and the accounting policy note would state that the value of the collection has been excluded from the balance sheet.
If collection items are not recognized as assets or revenues, most of the relevant suggested procedures relate to the museum's controls over collection items and contributions of such items. …