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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
Pi Kappa Phi, Inc.
Young, David W.
Functional Area(s):
   Financial Accounting
Difficulty Level: Intermediate
Pages: 7
Teaching Note: Available. 
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First Page and the Assignment Questions:

On June 11, 1997, the fraternity house of the Omega Chapter of Pi Kappa Phi, Inc., was heavily damaged by fire. The total loss was estimated to be $53,462, consisting of the building's net book value at the time of the fire of $45,001, and cleanup expenses of $8,461. Insurance proceeds totaled $40,000 during 1997 and $283,511 during 1998.

Reconstruction of a new fraternity house was begun in 1998. In addition, a campaign was begun to raise funds to finance the construction costs, which were expected to exceed the insurance proceeds by a significant amount. The campaign's goal was to raise a total of $400,000 by the end of 1991. There were over 900 chapter members, some dating back to the decade of the 1920s, who were potential donors to the campaign.

In June, 1999, the fraternity's auditors submitted financial statements for 1998, with comparative statements for 1997. The financial statements are contained in Exhibit 1. The auditors' opinion letter is reproduced below:

To the Officers of
Omega Chapter of Pi Kappa Phi, Inc.
West Lafayette, Indiana 47906
We have reviewed the accompanying balance sheets of Omega Chapter of Pi Kappa Phi, Inc. (an Indiana not-for-profit corporation), as of August 31, 1998 and 1997, and the related statements of revenue, expenses and members' equity and cash flows for the years then ended, in accordance with standards established by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of officers of Omega Chapter of Pi Kappa Phi, Inc.
A review consists principally of inquiries of the officers and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
As disclosed in the notes to the financial statements, generally accepted accounting principles require that the chapter house be stated at cost. The officers have informed us that the chapter house owned at November 10, 1972 is recorded at 100% of appraised value from an appraisal made by Indiana Insurance Group on that date. The effect on the financial statements is not known.
Based on our review, with the exception of the matter described in the preceding paragraph, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.

By October, 1999, $367,838 had been given or pledged in the fund raising campaign, mainly by chapter members. This totaled 92 percent of the goal. A report by Paul W. Jackson, the campaign manager, is contained in Exhibit 2.


  1. What is your opinion of the financial statements of the Omega Chapter of Pi Kappa Phi? Be as specific as you can. What are the significant accounting issues? What are the significant financial management issues?
  2. As a former chapter member, what questions would you like to have answered before making a donation to the campaign for a new building?