Transcript College and University Accounting

Introduction to NonProfit
Accounting and Financial
Reporting
Governmental - GASB
Private - FASB
AICPA Audit Guides
IRS - Tax Exempt
Nongovernmental
 FASB
116 and 117
AICPA Audit Guides
 Governmental
 may
not apply FASB 117 and 117
 may apply
 government
model
 AICPA SOP78-10 or VHWO Audit Guide*
*guidance modified to conform to GASB
standards
* FASB Statements 116 & 117
116: “Accounting for Contributions Received
and Contributions Made”
117: “Financial Statements of Not-for-Profit
Organizations”
Scope - for FASB 116/117
All Non-Governmental NFPs
 Voluntary
Health and Welfare
 Higher Education
 Other Nonprofits
 Healthcare Providers
Effective Date

Issued in June 1993

Generally, effective for fiscal years beginning after
December 15, 1994

Effective for fiscal years beginning after December
15, 1995 for small organizations
FASB 116 Overview
 Affects
three broad areas:
 Recognition
of Contributions
 Classification
 Expiration
of Contributions
of Donor Restrictions
Definitions of Terms
Nonreciprocal Transfer
A
transaction in which an entity incurs a liability
or transfers an asset to another entity without
directly receiving value in exchange
Condition
A
donor imposed stipulation or uncertainty
regarding a future event that must occur or be
resolved before a contribution is recognized
Restriction
A
donor imposed specification regarding the use
of the funds that is more specific than the
organization’s mission
Types of Transactions defined
in FASB 116
Contribution

Transfer of assets to an entity or a cancellation or
its liabilities in a voluntary nonreciprocal transfer
by another entity acting other than as an owner
Exchange

A reciprocal transfer of assets in exchange for
other assets or services
Agency
A
receipt of assets (as an agent) on behalf of a
designated third party
Types of Contributions
 Unconditional
gifts
 Conditional gifts
 Unconditional promises to give
 Conditional promises to give
 Contributed services
 Contributed collection items
Recognition of Contributions
Unconditional contributions
 recognized
in the period received
 set up allowance for uncollectible promises
 use present value if collection is in future
 Exceptions:
 Contributed services
 Collection items
Conditional contributions
 not
recognized until condition is met
 footnote pledge or record cash received as refundable
deposit
Contributed Services
Contributed services should be
recognized if the services received:
 Create
or enhance nonfinancial assets,
or
 Require specialized skills and would
typically need to be purchased if not
provided by donation
Contributed Collections
Contributed collection items need not be
recognized if the donated items:
 Are
held for public exhibition, education, or
research, and
 Are preserved, and
 Are subject to a policy requiring sale
proceeds to be reinvested in the collection
Contributions may be
restricted or unrestricted
 Permanently
restricted support
 Temporarily restricted support
 Unrestricted support
 Exceptions:
 simultaneous
period contributions
 implied time restrictions
Expiration of Donor
Restrictions
 Recognized
as a reclassification
 Recognized in the period of satisfaction
 Use of restricted before unrestricted funds
 Exception:
 Restrictions
on long-lived assets
Restrictions on Long-Lived Assets
 Reclassified
when put in service
 Reclassified
over the useful life
Examples:
 Exchange transaction:
Cash
Revenue
xx
xx
 Contribution:
Cash
xx
Temporarily Restricted Contribution
xx
 Release from Restriction:
Reclassification Out - Temporarily Restricted Satisfaction of Program Restriction
xx
Reclassification In - Unrestricted Satisfaction of Program Restriction
xx
Required Disclosures
 Unconditional/Conditional
promises
 Total
Amount due
 The amount receivable in:
 less than one year;
 one to five years; and
 more than five years
 Allowance for uncollectible promises (unconditional)
 Contributed
 Nature
services
and extent of services received
 Programs for which the services were received
 Amount of services recognized as revenues
Transition
 Retroactive
application
 Prospective
application:
 cumulative
effect of change
FASB 117 Overview
Establishes uniform standards for financial
reporting
 Financial statements should focus on the entity as
a whole
 Specifies how to report balances and transactions
 Financial statements should include a statement of
cash flows

Approach

Does not prescribe or prohibit any particular
display format

overriding display characteristics is flexibility

Establishes minimum display requirements
Basic Financial Statements
 Statement
of Financial Position
 Statement
of Activities
 Statement
of Cash Flows
 Notes
to financial statements
Statement of Financial Position
 Minimum
display:
 Total
amounts for assets, liabilities, and net
assets for the organization as a whole
 Totals for each of the three classes of net
assets - unrestricted, temporarily restricted,
permanently restricted
 Disclosure of the nature and amount of
restrictions
 Liquidity - Sequence accounts according to
maturity, classify as current and noncurrent,
disclose in the notes
Statement of Activities (a)
 Minimum
 Amount
display:
of change in net assets for the
organization as a whole
 Amount of change in each of the three
classes of net assets
 Amount of net assets released from
restrictions
Statement of Activities (b)
 Alternative
 Single
presentation permitted:
column statement format
 Multi-column format
 Two-statement approach
Statement of Activities (c)
 Revenues
and expenses generally
reported gross:
 Netting
of investment revenue & related
expenses permitted (disclose expenses)
 Gains
& losses may be netted
Statement of Activities (d)

All expenses are reported as a decrease in
unrestricted net assets

Expirations of donor restrictions recorded as
reclassifications of net assets

Gains and losses increase or decrease unrestricted
net assets unless their use is limited by donorimposed restricted or law
Statement of Activities (e)
 Expenses
must be reported by their
functional classification either in the
statement or in the footnotes
 Disclosure
of expenses by natural
classification is required for Voluntary
Health and Welfare Organizations
Statement of Activities (f)
 Functional
Classifications:
 Program
Services
 Supporting Services
 Management
& General activities
 Fund-raising activities
 Membership-development activities
 Joint
Cost Allocation follow AICPA
SOP 87-2
Statement of Cash Flows

Amends SFAS 95 to apply it to not-for-profit
organizations

Requires the financing activity classification for
contributions restricted for long-term purposes

Disclosures required for gifts of investments
and long-term assets
Transition
 Restate
any previous annual or interim
financial statements presented
 Disclose
the nature of the restatements
and their effect, if any, on the change in
net assets for each year presented
What about the funds?
 FASB
117 permits continued use of
fund accounting for internal
recordkeeping and external financial
reporting
 if
not-for-profits continue to use fund
accounting each fund balance must be
classified as 
unrestricted, temporarily restricted, or
permanently restricted net assets
Net Asset Classifications
Unrestricted
Unrestricted Current
Permanently
Restricted
x
x
x
x
x
x
Endowment
x
x
x
x
x
x
Annuity & Life
x
x
x
n/a
n/a
n/a
Restricted Current
Plant
Loan
Agency
Agency
Temporarily
Restricted
* New Audit Guides (EDs)
Exposure Draft:
Proposed Audit and
Accounting Guide
Not-for-Profit
Organizations
 dated 4/14/95

Exposure Draft:
Proposed Audit and
Accounting Guide
Health Care
Organizations
 dated 4/14/95

New AICPA Audit and
Accounting Guidance
 for
nongovernmental not-for-profits
 supersedes AICPA Industry Audit
Guides and SOPs
 including,
joint costs, federal awards,
related entities
 incorporates
FASB 116 and 117
*

Governmental Not-for-Profit Entities
GASB 29“The Use of Not-for-Profit Accounting and
Financial Reporting Principles by Governmental Entities”
(August 1995)
 government entities should not apply FASB 116
and 117 or new AICPA audit guide
 permits SOP78-10 pending GASB pronouncements
or current governmental model
 clarifies para 7 of GASB No. 20 ‘only new FASB
statements and interpretations developed for
business enterprises”
Accounting for Health Care
GASB - Government owned
FASB - private for profit and
private nonprofit
Current GAAP
 AICPA
Audit Guide as superseded by
FASB 116 and 117
 GASB
- ok to apply Audit Guide with
special provisions for govt. sector
Funds Structure
 General
Funds - only one fund
 Restricted
 specific
Funds -
purpose fund
 plant replacement and expansion fund
 endowment funds
Financial Statements
 Statement
of Financial Position
 Statement
of Activities
 Statement
of Cash Flows
Revenue
 Operating
Revenue - ongoing major/central
 Patient
Service Revenue
 Resident Service Revenue
 Other Operating Revenue
 Nonoperating
 gains,
Revenue - peripheral
gifts, grants,investment income
Expenses
 Nursing
Services Expense
 Other Professional Services Expense
 General Services Expense
 Fiscal Services Expense
 Administrative Services Expense
 Depreciation Expense - if not already allocated.
 Interest Expense - if not already allocated.
 Provision for Bad Debts - if not already allocated.
Examples
 Text
 Handout
( with or without funds )
Major differences
 Timing
of recognition of revenue for
contributions - governments can wait
 Financial
statements - may be some
differences in terminology and format
New Standards
 Govt:
In Specific Purpose Fund:
Cash
xx
Fund Balance
xx
Fund Balance xx
Cash
xx
 Private:
In Specific Purpose Fund:
Cash
xx
Other Oper RevenueTR- Contrib.
Reclassif Out -TR
xx
In General Funds:
Cash
xx
Other Operating Revenue/
Nonoperating Revenue xx
In General Funds:
Cash
xx
Reclassif In - Unrestr
Cash
xx
xx
xx
Analysis
 Consistency
Between Goals/Resources
 Intergenerational Equity
 Match Between Sources and Uses of
Resources
 Resource Sustainability
 Comparative Statistics
Southeast Hospice Center
Juanita Morales, a partner in a regional CPA firm, has been in-charge of the audit
and tax responsibilities for the Southeast Hospice Center for several years. This
client provides health and counseling care to patients near death who choose to
die at home and their families.
The Health Center’s Board of Directors has recently instituted a Total Quality
Management program in the Center. The Board has asked the help of Juanita
and her CPA firm in selecting output measures to be used in measuring the
organization’s performance.
What kind of entity is this?
What are the elements of this nonprofit organization’s Total Quality Management
program that may differ from that of a profit organization?
How can the GASB’s project on Service Efforts and Accomplishments be helpful in
identifying output performance measures?
Which specific outcome measures might be useful for this hospice organization?
Discussion
 wide
set of interested parties
 accounting
 GASB
software capabilities
Concepts No. 2
SEA Measures




Input:
 Expenditures used to provide services
Output:
 Number of patients admitted to program
 Number of referrals from hospitals
Outcome:
 Rates
Efficiency:
 Cost per patient
 Projected health care costs saved
College and University
Accounting
GASB
FASB
AICPA Audit Guide
GASB
 Governmentally
 traditional
owned (public)
AICPA model - 2 yr. schools
 governmental
model (Chpts. 1-13) - most
Funds
 Current
funds (unrestricted &
restricted)
 Loan funds
 Endowment and similar funds
 Annuity and life income funds
 Agency funds
 Plant funds
Current Funds
 Revenues
 Expenditures
 Transfers
 Assets,
Liabilities, Fund Balances
Endowment & Similar Funds
 Permanent
 Term
 Quasi-endowment
Annuity and Life Income
 actuarial
 IRS
assumptions
regulation
Agency Funds
 agent
of others
 collection,
 no
custodianship, disbursement
Fund Balances
Plant Funds Group
 Unexpended
Plant Funds
 Funds for Renewals and Replacements
 Funds for Retirement of Indebtedness
 Investment in Plant
Illustrative Transactions
& Financial Statements
(AICPA model)
 Balance
Sheet
 Statement of Current Funds Revenue,
Expenditures, and Other Changes
 Statement of Changes in Fund Balances
Private Colleges and
Universities
 FASB
Statement No. 93 - depreciation
 FASB
Statement No. 116 - contributions
 FASB
Statement No. 117 - Financial
Statements
FASB No. 116
 recognition
of revenues (expenses) for
contributions received (made)








Collection
Conditional Promise to Give
Contribution
Donor-Imposed Condition
Donor-Imposed Restriction
Nonreciprocal Transfer
Promise to Give
Unconditional Promise to Give
FASB No. 117
 Statement
of Financial Position
 Statement
of Activities
 Statement
of Cash Flows