Transcript Slide 1

Key Accounting & Reporting
Issues for Nonprofits: Introduction,
Overview and the Statement of
Financial Position
Presented by Larry L. Perry, CPA
CPA Firm Support Services, LLC
7/21/2015
www.cpafirmsupport.com
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Learning Objectives
 Describe fundamental definitions and operating
principles of nonprofit organizations
 Review SFASs for nonprofit organizations
 Describe basic financial statements and footnotes
presentations for nonprofit organizations
 Explain principles of accounting and reporting for
accounts in the statement of financial position
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Definitions of Nonprofit Organizations
 SFAS Nos. 116 and 117 (ASC 958)
 Examples of non-profit organizations
o
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Types of nongovernmental, nonprofit organizations
Type of voluntary health and welfare organizations
 Internal Revenue Service
o
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Common IRS classifications
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SFAS No. 116 (ASC 958)—Accounting for
Contributions
 Contributions received are recognized as revenues in the period
received at fair values
o
Includes unconditional promises to give
 Contributions made are recognized as expenses in the period
made at their fair values
o
Includes unconditional promises to give
 Conditional promises are recognized when they become
unconditional
 Restricted contributions are recorded and recognized according
to time and purpose restrictions
 In-kind contributions of materials, professional services, and
free space are recorded at fair values when received
 Contributions of collectibles are recorded as revenues at fair
values if NPO capitalizes collectibles
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SFAS No. 117 (ASC 958)—Financial
Statements for NPOs
Requires:
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Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Statement of Functional Expenses (required
only for VHWOs-but can be elected by others)
Classifications are based on the existence or
absence of donor-imposed restrictions
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SFAS No. 124 (ASC 958)—Accounting
for Certain Investments
 Requires fair value accounting and reporting
for:
o
o
Investments in equity securities with readily
determinable fair values
All investments in debt securities
 Requires certain disclosures about
investments, including investment returns
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Polling Question No. 1
 Which of the following are required by
nonprofit GAAP?
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A. Financial statements are required to be
comparative
B. SAS No. 117 requires fund accounting
C. Net assets classifications are based on donor
restrictions
D. None of the above
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Accounting Standards—Cash and Cash
Equivalents
 Same descriptions are required on statements of
financial position and cash flows
 Restricted amounts should be presented
separately
 Only includes cash equivalents with maturity dates
of three months or less at time of purchase (to
prevent fair value from changing)
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Promises to Give
 Include oral and written agreements
 Recipient has right to expect transfer of assets
in future and donor has enforceable obligation
to give
 Donors receive no tangible benefits
 Recorded net of estimates of uncollectible
amounts in receivables and revenues
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Intentions to Give
 Promises that aren’t legally enforceable are
intentions to give
 Revocable or modifiable trust instruments are
normally intentions to give
 Intentions to give are not recorded but may be
disclosed
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Unconditional & Conditional Promises to
Give
 Promise must be evidenced in some way
o
o
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Identification of the donor
Contact information
Amount of the gift
 If an unconditional promise is for a future period, it would be recorded
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as a restricted gift
Unconditional promises would be reclassified to unrestricted when the
time restriction is reached, not when payment is received
Promises to give receivable in less than one year are recorded at their
fair value
Cash promises beyond one year would be discounted to present value
Promise to give marketable securities would be valued under SFAS No.
157 (ASC 820)
Promises to give non-financial assets in a current year would be
recorded at net realizable value; best estimate of fair value would used
for future gifts
Conditional promises become unconditional when condition is
satisfied (such as for a matching grant)
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Polling Question No. 2
 Which of the following criteria are necessary
for recording promises to give and
contributions revenue?
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A. Non-cash contributions must be received or
promised
B. Contributions must be unconditional
C. A promise must be legally enforceable
D. All of the above
E. None of the above
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Accounts Receivable & Inventories
 Accounts receivable are recorded similar to
for-profit entities
 Inventories
o
o
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Nonprofit GAAP requires cost basis for
purchases, fair value for gifts
Nonprofit GAAP permits estimates, averages
and approximations
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Property and Equipment
 Purchases are recorded at cost
 Donations are recorded at fair value at date of gift
 Purchases with restricted funds or donations with restricted use
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would be classified and disclosed as restricted net assets if the
documentation of the gift specifies the restrictions
Gains or losses upon disposition would be unrestricted unless
specified otherwise by donor
Donations with long-term restrictions are financing activities in
statement of cash flows
First-time capitalization of property and equipment should be
recorded at historical cost for purchases and fair value at date of
donation.
Fully-depreciated assets’ cost and accumulated depreciation may
or may not be recorded at initial capitalization
Depreciation is required
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Collections
 Include works of art, rare books and documents, and other
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items held for display or study
May be acquired with restricted funds and should be
accounted for in accordance with donor restrictions
May be capitalized or not in accordance with reporting
entity’s policy—all or none
May record contributions only if policy is to capitalize
First-time capitalization permits use of valuation information
that is easiest to obtain
Collections are not normally depreciated
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Liabilities
 Accounting principles are generally the same as for-
profit GAAP—short and long liabilities
 Guarantees
o
Non-contingent guarantees must be recorded under
FIN 45 (ASC 460)
 Deferred revenue—recorded when earned and
matched with related costs
 Refundable advances—funds received from third
party (usually grants) and related goods or services
have not be provided
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Net Assets and Reclassifications
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SAS No. 117 (ASC 958) requires:
o
o
o
Unrestricted (may include board designations)
Temporarily restricted as to time or purpose
Permanently restricted by agreement
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Temporarily restricted net assets are reclassified to
unrestricted when time or purpose restrictions are
satisfied. Expenses are recorded as unrestricted.
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Income from permanently restricted net assets is
classified as unrestricted unless specified otherwise by
donor.
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Polling Question No. 3
 Which of the following are true for non-profit GAAP?
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A. Valuations for inventories can be estimated
B. Capitalized art work would not be depreciated
C. Promises to give are presented net of
uncollectibles
D. Net assets accounting is based on donor
restrictions
E. All the above
F. None of the above
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Illustrative Statement of Financial
Position—Key Issues
 Presentation can be classified or non-classified,
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whichever is most meaningful
Asset restrictions must be noted on statement or in a
footnote
Comparative is most meaningful but not required
Line item references to footnotes aren’t required but
bottom reference to notes is required
Board designations of unrestricted net assets can be
disclosed on statement or in footnotes
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Slide 18
Illustrative Disclosures for Statement
of Financial Position
 Note A
 Basis of Presentation
 Inventory of Merchandise and Supplies
 Property and Equipment
 Use of Estimates
 Cash
 Note B—Investments
 Note C—Property and Equipment
 Note D—Related Party Transactions
 Note E—Debt Obligations
 Note F—Restricted Net Assets
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Polling Question No. 4
 Non-profit GAAP is presented in Topic 958 of
the FASB Accounting Standards Codification
and in updated pre-codification SFASs
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A. True
B. False
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The End
 What to do if you want more
 Email Larry Perry: [email protected] with
questions
 Visit www.cpafirmsupport.com for webcast resources
 Read Larry Perry’s weekly articles/blog, Today’s World of
Audits, at www.accountingweb.com under the A&A and
Bloggers 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
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