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Key Accounting & Reporting Issues for Nonprofits: Revenues Recognition Presented by: Larry L. Perry, CPA CPA Firm Support Services, LLC 7/18/2015 www.cpafirmsupport.com 1 Learning Objectives 1. Understand principles of revenue recognition in Statements of Financial Accounting Standards for nonprofit organizations. 2. Be able to properly account for revenues of nonprofit organizations. 3. Understand basic principles of accounting and reporting for revenue accounts presented on the statement of activities. 7/18/2015 www.cpafirmsupport.com 2 SFAS No. 116 (Topic 958-605)—Accounting for Contributions Contributions received are recognized as revenues in the period received or promised at fair values. Includes unconditional promises to give. Contributions made are recognized as expenses in the period made or promised at their fair values. Includes unconditional promises to give. Conditional promises are recognized when they become unconditional. Restricted contributions are recorded and recognized according to donors’ time and purpose restrictions. In-kind contributions of materials, professional services, and free space are recorded at fair values when received. Contributions of collection items are recorded as revenues at fair values if NPO capitalizes collection items. 7/18/2015 www.cpafirmsupport.com 3 Polling Question No. 1 Contributions are recorded as deferred revenues until time and purpose restrictions are satisfied 7/18/2015 A. True B. False www.cpafirmsupport.com 4 Nonprofit Organization Financial Statements Statement of Financial Position Statement of Activities Statement of Cash Flows Footnotes Statement of Functional Expenses Required for Voluntary Health and Welfare Organizations Voluntary for other NPOs 7/18/2015 www.cpafirmsupport.com 5 Illustrative Statement of Activities For comparative presentations, prior year total column would be presented on right. Changes in net assets can be presented in columnar format or sequentially from top to bottom. Expiration of time restrictions and accomplishment of purpose restrictions are reclassified to unrestricted net assets. All expenses are recorded in unrestricted net assets. 7/18/2015 www.cpafirmsupport.com 6 Illustrative Statement of Cash Flows Generally the same as for-profit entities. Direct or indirect methods permitted. Interest and taxes paid disclosures required on the statement or in the footnotes. Restricted gifts that are receivable over a long term are treated as financing activities (usually permanently restricted promises to give). 7/18/2015 www.cpafirmsupport.com 7 Polling Question No. 2 Which of the following are differences from for-profit GAAP for NPOs? 7/18/2015 A. The direct method for the stmt. of cash flows is required B. All restricted gifts are combined in stmt. of activities C. Net assets and revenues must reflect donor restrictions D. None of the above www.cpafirmsupport.com 8 Understanding Revenue Recognition ASC overview for all entities • • Must be realized or realizable Must be earned Non-profit GAAP • • • • Exchange transactions are recorded same as for-profit GAAP. Contributions are recorded in the period received or promised. Donor-imposed restrictions drive the net asset classification. Conditional gifts are not recorded until they are unconditional. 7/18/2015 www.cpafirmsupport.com 9 Contributions of Cash or Other Assets Unconditional promises to give—legally enforceable Intentions to give—not legally enforceable Exchange transactions—this for that Agency transactions—recipient not principal beneficiary Unrestricted, temporarily restricted, permanently restricted contributions classifications Restrictions met in current year may be recorded with other contributions Board imposed designations of unrestricted net assets are not contributions 7/18/2015 www.cpafirmsupport.com 10 In-Kind Contributions Donated materials or merchandise Donated long-lived assets and free use of facilities Donated services Professional services that would otherwise be purchased Volunteer services contributed to construct a capital asset 7/18/2015 www.cpafirmsupport.com 11 Other Revenues Transactions Agency transactions Exchange transactions Other accrual basis revenues Special events Program service fees Sales of merchandise and publications Third-party reimbursements—may be refundable advances if not used or disbursed 7/18/2015 www.cpafirmsupport.com 12 Illustrative Notes Affecting Revenues— Note A Organization Method of accounting Basis of presentation Revenue recognition Cash and cash equivalents 7/18/2015 www.cpafirmsupport.com 13 Illustrative Notes—Investments Description and number of shares or face amount SFAS No. 157 (Topic 820) hierarchy input level used for fair value determination of all marketable equity and debt securities Unrealized gains and losses on securities are reported in the statement of activities Realized gains and losses, interest and dividends are classified separately in the statement of activities 7/18/2015 www.cpafirmsupport.com 14 Polling Question No. 3 Only investments in equity and debt securities held for trading activities are required to be presented at fair value for NPOs 7/18/2015 A. True B. False www.cpafirmsupport.com 15 Illustrative Notes—Related Party Transactions Identify and describe all significant related parties Describe nature of relationship (equity, management, contracts, etc.) Disclose dollar amount of transactions during the year Determine any variable interest entities for which the reporting entity is primary beneficiary and whether it is necessary to apply SFAS Nos. 167 and 160 (Topic 810) 7/18/2015 www.cpafirmsupport.com 16 Illustrative Note—Restricted Net Assets Activities during the year in material restricted net assets accounts Reclassifications Expiration of time restrictions Satisfaction of purpose restrictions Disclosure of gift concentrations, i.e., material contributions from individuals or organizations 7/18/2015 www.cpafirmsupport.com 17 Illustrative Note—In-Kind Contributions Describe nature of contributions and input hierarchy used to determine fair values. Categories 1. Donated merchandise 2. Donated services Professional Contributed to create a non-financial asset Volunteers Free use of space Assets such as securities, property, and equipment, etc. 7/18/2015 www.cpafirmsupport.com 18 Illustrative Note—Non-Cash Transactions Describe nature and amounts of all non-cash transactions excluded from statement of cash flows. Disclosure can be on face of statement of cash flows or in footnote. 7/18/2015 www.cpafirmsupport.com 19 Polling Question No. 4 Which of the following statements are true? A. Non-profit GAAP is the same as for-profit GAAP B. Promises and intentions to give are recorded when made C. In-kind contributions are recorded at estimated values D. Other revenues are recorded on a cash basis for NPOs E. None of the above 7/18/2015 www.cpafirmsupport.com 20 The End What to do if you want more Email Larry Perry: [email protected] with questions Visit www.cpafirmsupport.com for webcast resources Register for free email newsletter on CPA Firm Support website Read Larry Perry’s weekly articles/blog, Today’s World of Audits, at www.accountingweb.com under the A&A articles and Blogs tabs for small audit and other subjects Watch for Larry Perry’s Performing Small Audits, Reviews and Compilations for Entities using the AICPA’s FRF for SMEs from Wiley & Sons in 2015 7/18/2015 www.cpafirmsupport.com 21