LCMS Commission on Constitutional Matters — Minutes St. Louis, Missouri — April 2, 1994, Page 7

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reason. However, as noted previously, if it wishes to remain a member of the Synod, that autonomy is
limited. The Commission on Theology and Church Relations has spoken to this matter in response to
a question addressed to it prior to the 1992 synodical convention. The Commission on Constitutional
Matters concurs with that response which is found on page 67 of the 1992 Convention Workbook.
79. Definition of LCMS, Inc. Applied to Financial Statements (Ag, 1981) : The Treasurer and Chief
Financial Officer of the Synod had forwarded a request to the Commission on Constitutional Matters for an
opinion in view of newly proposed auditing standards. The request which he made was as follows:
Present Situation
The American Institute of Certified Public Accountants (AICPA) has made major changes in accounting
and reporting requirements for not-for-profit (NFP) organizations which will be effective with the
1995/96 fiscal year of LCMS, Inc. These changes basically eliminate "fund accounting" and require the
combination in audited financial statements of all funds not permanently or temporarily restricted. The
AICPA will also be requiring at that time the booking of "pledges" to or from another entity acting other
than as an "owner."
The AICPA has also issued an exposure draft of an accounting requirement that would require a NFP
organization to issue consolidated financial statements with another NFP organization when it has (a)
"control" of the other NFP organization through a majority ownership by other than outstanding shares or
"control" through a majority interest in the board of the other entity and (b) "an economic beneficial
interest" in the other organization. The AICPA states that an "economic beneficial interest" in another
organization exists if the other entity holds significant resources that must be used for the unrestricted or
restricted purposes of the NFP organization, either directly or indirectly by producing income or
providing services. An example, is one inter-related NFP organization soliciting funds for another in the
relationship.
The AICPA exposure draft further provides that "control" of a separate NFP organization in which the
reporting organization has an "economic beneficial interest" may take forms other than majority
ownership or voting interest. For example, "control" may be through an "affiliation agreement." In
circumstances such as these, consolidation is permitted, but not required. If consolidated statements are
not presented, the AICPA draft states the following disclosures should be made:
A. Identification of the other organization and the nature of the relationship with the reporting
organization that results in control.
A.

Summarized financial data of the other organization, including total assets, liabilities, net
assets, revenue, and expenses and resources that are held for the benefit of the reporting
organization or that are under its control.

A.

Description and qualification of any transactions between the other organization and the
reporting organization.

The Synod's financial and operating management have met with the Director of Internal Auditing and the
Engagement Partner and the Audit Manager of Ernst & Young regarding the new and potential AICPA
accounting and reporting requirements for NFP organizations. This group (the group) concluded that an
interpretation of the Synod's Handbook is necessary in planning for the implementation of the new and
potential AICPA requirements.
The present audited financial statements for LCMS, Inc. are not prepared on a fully consolidated basis.
Such a format would combine similar accounts such as cash or investments. The LCMS, Inc. statements