CAA Chapter 11

8/6/2019 CAA Chapter 11

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Chapter 11Chapter 11Not-For-Profit Accounting


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2008 Clarence Byrd Inc. 2

NPO Organizations Defined

Not-for-profit organizationsnormally do not have a

transferable ownershipinterest.


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Not-for-profit organizationsare operated exclusively for

social, educational,professional, religious,health, charitable, or other not-for-profit purposes.


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The resource providers, bethey members or

contributors, do not standto benefit because of their status as resourceproviders.


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NPO GAAP

General Approach Some Handbook sections

are applicable(e.g., Section 1506 whichdeals with accountingchanges)

Some sections are not(e.g., Section 3465 onincome taxes)


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NPO Handbook Sections Section 4400 Financial Statement

Presentation Section 4410 Revenue Recognition Section 4420 Contributions Receivable Section 4430 Capital Assets Section 4440 Collections Held Section 4450 Controlled and Related Entities Section 4460 Related Party Transactions


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Fund Accounting Defined

Paragraph 4400.02(c) Fund accountingcomprises the collective accounting proceduresresulting in a self-balancing set of accounts for eachfund established by legal, contractual or voluntaryactions of an organization.

Elements of a fund can include assets, liabilities, netassets, revenues and expenses (and gains and losses,where appropriate). Fund accounting involves anaccounting segregation, although not necessarily aphysical segregation, of resources.


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Problems With Fund

Accounting In terf und Trans fer s Until Section 4400 was

added to the CICA Handbook, there were no rulesgoverning the reporting of interfund transfers. Suchtransfers could be made at the discretion of theorganization and could be reported in a manner that suggested more activity than the organizationwas actually experiencing.


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CICA Handbook Solutions

Fund Definitions

Paragraph 4400.06 An organization thatuses fund accounting in its financial statementsshould provide a brief description of the purposeof each fund reported. (April, 1997)


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CICA Handbook Solutions

Fund Definitions Paragraph 4400.12 Interfund transfers should be

presented in the statement of changes in net assets.(April, 1997)

Paragraph 4400.13 The amount and purpose ofinterfund transfers during the reporting period should bedisclosed. (April, 1997)

Paragraph 4400.14 The amounts, terms andconditions of interfund loans outstanding at thereporting date should be disclosed. (April, 1997)


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Recognition Alternatives

Paragraph 4410.10 An organization shouldrecognize contributions in accordance with either:

(a) the deferral method; or (b) the restricted fund method. (April, 1997)


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The Deferral Method

Under the d eferral metho d of accounting for contributions, restricted contributions related toexpenses of future periods are deferred and recognized

as revenue in the period in which the related expensesare incurred. Endowment contributions are reported asdirect increases in net assets.

All other contributions are reported as revenue of thecurrent period. Organizations that use fund accountingin their financial statements without following therestricted fund method would account for contributionsunder the deferral method.


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The Restricted Fund Method

The re s tricte d fund metho d of accounting for contributions is a specialized type of fund accountingwhich involves the reporting of details of financial

statement elements by fund in such a way that theorganization reports total general funds, one or morerestricted funds, and an endowment fund, if applicable.

Reporting of financial statement elements segregatedon a basis other than that of use restrictions (e.g., byprogram or geographic location) does not constitutethe restricted fund method.


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Contributions

A co n trib u tio n is a non-reciprocaltransfer to a not-for-profitorganization of cash or other assets

or a non-reciprocal settlement or cancellation of its liabilities.

Government funding provided to anot-for-profit organization is

considered to be a contribution.


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Types Of Contributions

A re s tricte d co n trib u tio n is acontribution subject to externallyimposed stipulations that specify

the purpose for which thecontributed asset is to be used.

A contribution restricted for thepurchase of a capital asset or acontribution of the capital assetitself is a type of restrictedcontribution.


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A n e nd owme n t co n trib u tio n is atype of restricted contributionsubject to externally imposed

stipulations specifying that theresources contributed bemaintained permanently, althoughthe constituent assets may changefrom time to time.


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A n un re s tricte d co n trib u tio n is acontribution that is neither arestricted contribution nor an

endowment contribution.


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Application Of The Deferral

Method U n re s tricte d Co n trib u tio ns These

contributions can be recognized in the

period in which they are received or become receivable.


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Application Of The Deferral

Method Re s tricte d Co n trib u tio ns The basic idea here is

that the recognition of restricted contributionsmust be deferred until the restriction is fulfilled.The actual implementation of this will dependon the type of restriction that is involved:


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Application of the Deferral Method

Restricted Contributions

Ex pe ns e s Of C u rre n t Perio d If the restriction is for

current period expenses, the contributions shouldbe recognized in the current period.

Ex pe ns e s Of Fu tu re Perio ds In this case, thecontributions should be recognized in the sameperiod or periods in which the related expenses aremade.


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Pu rcha s e Of Capital A ss et s If the restriction isbased on acquiring capital assets that will beamortized, the contributions should be recognizedon the same basis that the amortization expense isrecorded.

Alternatively, if the contributions are restricted to

the acquisition of non-amortizable assets, theyshould be recorded as direct increases in netassets, without being disclosed as a revenue in theStatement Of Operations.


Restricted Contributions


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Restricted Contributions Repayme n t Of Debt The recognition pattern here

will depend on the purpose for which the debt wasincurred:

If the debt was for expenses of one or more periods,the repayment contributions should be recognizedwhen the related expenses are recognized.

If the debt was for the acquisition of non-amortizablecapital assets, the repayment contributions shouldbe added directly to net assets without being

recorded as revenues in the Statement OfOperations. If the debt was for any other purpose, the repayment

contributions should be recognized as revenue in thecurrent period.


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Application of the Deferral

Method

End owme n t Co n trib u tio ns These contributionsshould be recorded as direct increases in netassets during the current period. They should notbe included in the revenues disclosed in theStatement Of Operations.


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Method Inv e s tme n t In come As was the case with

contributions restricted to the repayment of debt,the treatment of investment income amounts isdependent on their nature:

If the investment income is not subject to externalrestrictions, it should be recognized as a revenueduring the current period.

... ...


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contributions restricted to the repayment of debt,the treatment of investment income amounts isdependent on their nature:

... If the investment income must be added to the

principal amount of resources held for endowment,

the net investment income should be recorded as adirect increase or decrease in net assets, not as arevenue in the Statement Of Operations.

...


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contributions restricted to the repayment of debt,the treatment of investment income amounts is

dependent on their nature: ... ... If the investment income is subject to other types of

restrictions, it should be allocated to income on the

same basis as was used for restricted contributions(e.g., if it is restricted to purchases of amortizablecapital assets, it should be recognized as a revenueon the same basis as the amortization expense isrecorded).


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Application of the

Restricted Fund Method U n re s tricte d Co n trib u tio ns

These contributions can be recognizedin the period in which they are receivedor become receivable. They should bedisclosed in the general fund.


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Application of the

Restricted Fund Method Re s tricte d Co n trib u tio ns The treatment here will depend

on whether a restricted fund is being used for theparticular type of restriction that is involved. For example,if an organization receives contributions that are restrictedto providing food for the homeless, the treatment of thesecontributions will depend on whether a separate restrictedfund has been established for this type of activity.


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Application of the Restricted Fund

Method Restricted Contributions Co n trib u tio ns With A Corre s po nd in g Re s tricte d Fund

In this case, the restricted contributions should berecognized as a revenue of the related fund in theperiod in which they are received or becomereceivable.


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Application of the Restricted Fund

Method Restricted Contributions Co n trib u tio ns With No Corre s po nd in g Re s tricte d

Fund These contributions should be recognized on thesame basis as they would be under the deferral method(e.g., if they are restricted to purchases of amortizablecapital assets, they should be recognized as a revenueon the same basis as the amortization expense isrecorded).


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Application of the

Restricted Fund Method End owme n t Co n trib u tio ns These contributions should

be recognized as a revenue of the endowment fund inthe period in which they are received or become

receivable. Note the difference here from thetreatment of these amounts under the deferral method.Under the deferral method, endowment contributionsare not recorded as revenues, but as direct increases inthe endowment fund assets.


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Application of the

Restricted Fund Method Inv e s tme n t In come As was the case under

the deferral method, the treatment of

investment income amounts is dependenton their nature: If the investment income is not subject to external

restrictions, it should be recognized as a revenueduring the current period. It would be included inthe general fund.

.. ..


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Application of the


the deferral method, the treatment ofinvestment income amounts is dependent ontheir nature:

.. If the investment income must be added to the

principal amount of resources held for endowment,the net investment income should be recorded as arevenue in the Statement Of Operations of theendowment fund in the period in which it becomesreceived or receivable.

..


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Application of the


the deferral method, the treatment ofinvestment income amounts is dependenton their nature: ..

.. If the investment income is subject to a restriction for

which there is a corresponding restricted fund, itshould be included as a revenue in the Statement OfOperations of that fund in the period in which itbecomes received or receivable. If nocorresponding restricted fund exists, it should berecognized on the same basis as under the deferralmethod.


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Section 4420

Contributions Receivable Paragraph 4420.03

A contribution receivable should berecognized as an asset when itmeets the following criteria:

the amount to be received canbe reasonably estimated; and

ultimate collection is reasonablyassured.


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Section 4420 Contributions

Receivable - Disclosure Paragraph 4420.08

When a not-for-profit organizationhas recognized outstandingpledges and bequests in itsfinancial statements, the followingshould be disclosed:

(a) the amount recognized as assets

at the reporting date; and (b) the amount recognized as

revenue in the period.


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Non-Monetary Contributions

Criteria For Recognition Their value must be subject to

reasonable estimation. While this isnot explicitly stated, it is likely thatmany items would not be recognizedbecause the cost of estimationwould likely exceed any benefits tobe achieved through this process.


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Non-Monetary Contributions

Criteria For Recognition Contributed goods and services

would only be recognized if theywould have otherwise beenpurchased. This is likely to eliminatethe recognition of a significantportion of the voluntary servicesreceived.


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Disclosure - Contributions

Paragraph 4410.21 An organization shoulddisclose:

(a) the policy followed in accounting for endowmentcontributions; and

(b) the policies followed in accounting for restrictedcontributions.

Paragraph 4410.22 An organization should discloseits contributions by major source.


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Disclosure - Contributions

Paragraph 4410.23 An organization should disclosethe policy followed in accounting for contributedmaterials and services.

Paragraph 4410.24 An organization should disclosethe nature and amount of contributed materialsand services recognized in the financialstatements.


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Revenue Disclosure

Deferral Method Paragraph 4410.52 Deferred contributions

balances should be presented in the statement offinancial position outside net assets.

Paragraph 4410.53 An organization should disclosethe nature and amount of changes in deferredcontributions balances for the period.


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Revenue Disclosure

Deferral Method Paragraph 4410.55 An organization should disclose

the following related to net investment incomeearned on resources held for endowment:

(a) the amounts recognized in the statement ofoperations in the period;

(b) the amounts deferred in the period; (c) the amounts recognized as direct increases or

decreases in net assets in the period; and (d) the total earned in the period.


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Revenue Disclosure

Restricted Fund Method Paragraph 4410.73 When restricted contributions

are recognized in the general fund in accordancewith paragraph 4410.65, any deferred contributionsbalances should be presented in the statement offinancial position outside net assets.

Paragraph 4410.74 When restricted contributionsare recognized in the general fund in accordance

with paragraph 4410.65, the nature and amount ofchanges in deferred contributions balances for theperiod should be disclosed.


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Revenue Disclosure

Restricted Fund Method Paragraph 4410.76 An organization should

disclose the following related to net investmentincome earned on resources held for endowment:

(a) the amounts recognized in the general fund inthe period;

(b) the amounts recognized in each restricted fundin the period;

(c) the amounts recognized in the endowment fundin the period; (d) any amounts deferred in the period; and (e) the total earned in the period.


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Section 4400 FinancialS

tatement Presentation Required Statements

Financial Position Operations Changes In Net Assets Cash flows


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Financial Position

General Recommendations Paragraph 4400.18 For each financial statement

item, the statement of financial position shouldpresent a total that includes all funds reported.


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Financial Position

General Recommendations Paragraph 4400.19 The statement of financial

position should present the following: (a) net assets invested in capital assets; (b) net assets subject to restrictions requiring that they be

maintained permanently as endowments; (c) other restricted net assets; (d) unrestricted net assets; and (e) total net assets.


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Financial Position

External Restrictions Paragraph 4400.26 The following should be

disclosed: (a) the amounts of deferred contributions attributable to

each major category of external restrictions with adescription of the restrictions; and

(b) the amount of net assets subject to externalrestrictions requiring that they be maintained permanentlyas endowments.


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Financial Position

External Restrictions Paragraph 4400.28 The following should be

disclosed: (a) the amount of net assets (fund balances) subject to

external restrictions requiring that they be maintainedpermanently as endowments;

(b) the amounts of net assets (fund balances)attributable to each major category of other externalrestrictions with a description of the restrictions; and

(c) the amounts of deferred contributions attributable toeach major category of external restrictions with adescription of the restrictions .


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Statement Of Operations

General Recommendations Paragraph 4400.37 Revenues and expenses

should be disclosed at their gross amounts.


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Deferral Method Paragraph 4400.33 The statement of

operations should present

a) for each financial statement item, a total that includesall funds reported; and (b) total excess or deficiency of revenues and gains over

expenses and losses for the period


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Restricted Fund Method Paragraph 4400.35 The statement of operations

should present the following for the period: (a) the total for each financial statement item

recognized in the general fund; (b) the total for each financial statement item

recognized in the restricted funds, other than theendowment fund;

(c) the total for each financial statement itemrecognized in the endowment fund; and

(d) excess or deficiency of revenues and gains over expenses and losses for each of the general fund,restricted funds other than the endowment fund and theendowment fund.


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Statement Of Changes

In Net Assets Paragraph 4400.41 The statement of changes in

net assets should present changes in the followingfor the period:

(a) net assets invested in capital assets; (b) net assets subject to restrictions requiring that they be

maintained permanently as endowments; (c) other restricted net assets;

(d) unrestricted net assets; and (e) total net assets.


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Statement Of Cash Flows

Paragraph 4400.46The statement of cash flowsshould report the totalchanges in cash and cashequivalents resulting fromthe activities of theorganization during theperiod. The components ofcash and cash equivalentsshould be disclosed.


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Statement Of Cash Flows

Paragraph 4400.47 The statement of cashflows should distinguish at least the following:

(a) cash from operations: the components of cashfrom operations should be disclosed or the excess ofrevenues over expenses should be reconciled tocash flows from operations; and

(b) the components of cash flows resulting fromfinancing and investing activities, not included in (a)

above.


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Section 4430 and 4440

Capital Assets Traditional practice

excluded from financial

statements Section 4430 requires

the usual capitalizationand amortization rules

Two importantexceptions


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Exception 1 Small

Organizations Paragraph 4430.03 Organizations may limit

the application of this Section to theRecommendation in paragraph 4430.40 ifthe average of annual revenuesrecognized in the statement of operationsfor the current and preceding period ofthe organization and any entities it controlsis less than $500,000. When anorganization reports some of its revenues

net of related expenses, gross revenueswould be used for purposes of thiscalculation.


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Exception 1 Small

Organizations - Disclosure Paragraph 4430.40 Organizations meeting the

criterion in paragraph 4430.03 and not followingthe other Recommendations of this Section should

disclose the following: (a) the policy followed in accounting for capital assets; (b) information about major categories of capital assets

not recorded in the statement of financial position,including a description of the assets; and

(c) if capital assets are expensed when acquired, theamount expensed in the current period.


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Exception 2 - Collections

Collections held for public exhibition, education or research; protected, cared for and preserved; and subject to an organizational policy that requires any

proceeds from their sale to be used to acquire other items to be added to the collection or for the directcare of the existing collection.


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Capital Assets Recognition

Paragraph 4430.06 A capital asset should berecorded on the statement of financial position atcost. For a contributed capital asset, cost is

considered to be fair value at the date ofcontribution. In unusual circumstances when fair value cannot be reasonably determined, thecapital asset should be recorded at nominal value.


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Capital Assets - Amortization

Paragraph 4430.16 The cost, less any residualvalue, of a capital asset with a limited life shouldbe amortized over its useful life in a rational and

systematic manner appropriate to its nature anduse by the organization. Amortization should berecognized as an expense in the organizationsstatement of operations.

Paragraph 4430.23 The amortization method andthe estimate of the useful life of a capital assetshould be reviewed on a regular basis.


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Capital Assets Asset

Retirement Obligations Paragraph 4430.25 Obligations

associated with the retirement ofproperty, plant and equipment

are accounted for in accordancewith Asset RetirementObligations, Section 3110.


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Capital Assets Write Downs

Paragraph 4430.28 When acapital asset no longer has anylong-term service potential to

the organization, the excess ofits net carrying amount over any residual value should berecognized as an expense inthe statement of operations. Awrite down should not bereversed.


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Capital Assets

Presentation And Disclosure Paragraph 4430.31 For each major category

of capital assets there should be disclosure of: (a) cost; (b) accumulated amortization, including the amount of

any write downs; and (c) the amortization method used, including the

amortization period or rate.


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Capital Assets

Presentation And Disclosure Paragraph 4430.32 The net carrying amounts of

major categories of capital assets not beingamortized should be disclosed.

Paragraph 4430.33 The amount of amortization ofcapital assets recognized as an expense for theperiod should be disclosed.

Paragraph 4430.34 The amount of any write downsof capital assets should be disclosed in thefinancial statements for the period in which thewrite downs are made.


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Contributed Capital Assets

Paragraph 4430.37 The nature and amount ofcontributed capital assets received in the periodand recognized in the financial statements should

be disclosed. Paragraph 4430.38 Information should be

disclosed about contributed capital assetsrecognized at nominal value


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Controlled Not-For-Profit

Organizations Paragraph 4450.14 An organization should

report each controlled not-for-profitorganization in one of the following ways:

(a) by consolidating the controlled organization in itsfinancial statements;

(b) by providing the disclosure set out in paragraph4450.22; or

(c) if the controlled organization is one of a large number of individually immaterial organizations, by providing thedisclosure set out in paragraph 4450.26.


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Organizations Paragraph 4450.22 For each controlled not-for-profit

organization or group of similar controlled organizationsnot consolidated in the reporting organizations financialstatements, the following should be disclosed, unless thegroup of controlled organizations is comprised of a largenumber of individually immaterial organizations (seeparagraph 4450.26):

(a) total assets, liabilities and net assets at the reportingdate;

(b) revenues (including gains), expenses (including losses)and cash flows from operating, financing and investingactivities reported in the period;

(c) details of any restrictions, by major category, on theresources of the controlled organizations; and

(d) significant differences in accounting policies fromthose followed by the reporting organization.


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Organizations Paragraph 4450.26 An organization may

exclude a group of controlled organizationsfrom both consolidation and the disclosureset out in paragraph 4450.22, provided that

(a) the group of organizations is comprised of alarge number of organizations that areindividually immaterial; and

(b) the reporting organization discloses thereasons why the controlled organizations havebeen neither consolidated nor included in thedisclosure set out in paragraph 4450.22.


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Controlled Profit Oriented

Organizations Paragraph 4450.31 For a

controlled profit orientedenterprise, regardless of whether it is consolidated or accountedfor using the equity method, thefollowing should be disclosed:

(a) the policy followed in reporting

the controlled enterprise; and (b) a description of the relationship

with the controlled enterprise.


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Controlled Profit Oriented

Organizations Paragraph 4450.32 For each

controlled profit orientedenterprise or group of similar controlled enterprises accountedfor using the equity method, thefollowing should be disclosed:

(a) total assets, liabilities andshareholders equity at the reportingdate; and

(b) revenues (including gains),expenses (including losses), netincome and cash flows fromoperating, financing and investingactivities reported in the period.


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Joint Ventures

Alternatives Can use proportionate

consolidation Can use the equitymethod


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Joint Ventures

Paragraph 4450.37 For aninterest in a joint venture,regardless of whether it is

reported using the proportionateconsolidation or the equitymethod, the following should bedisclosed :

(a) the policy followed in reportingthe interest; and (b) a description of the relationship

with the joint venture.


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Joint Ventures Paragraph 4450.38 For each interest in a joint

venture, or group of similar interests, accountedfor using the equity method, the following shouldbe disclosed:

(a) the reporting organizations share of the joint venturestotal assets, liabilities and net assets, or shareholdersequity, at the reporting date;

(b) the reporting organizations share of the joint venturesrevenues (including gains), expenses (including losses), andcash flows from operating, financing and investing

activities reported in the period; and (c) significant differences in accounting policies from

those followed by the reporting organization.


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Significantly Influenced NPOs Paragraph 4450.40 When the reporting

organization has significant influence in another not-for-profit organization, the following should bedisclosed:

(a) a description of the relationship with the significantlyinfluenced organization; (b) a clear and concise description of the significantly

influenced organizations purpose, its intended communityof service, its status under income tax legislation and itslegal form; and

(c) the nature and extent of any economic interest thatthe reporting organization has in the significantlyinfluenced organization.


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Significantly Influenced Profit

Oriented Enterprises Paragraph 4450.43 When the

reporting organization hassignificant influence over a

profit oriented enterprise, theinvestment should beaccounted for using the equitymethod in accordance withInvestments, Section 3051.


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Section 4460 Related Party

Transactions - DefinitionsRel at ed parti es exist when one party has the abilityto exercise, directly or indirectly, control, joint control or

significant influence over the other. Two or moreparties are related when they are subject to commoncontrol, joint control or common significant influence.

Two not-for-profit organizations are related parties if

one has an economic interest in the other. Relatedparties also include management and immediate familymembers.


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Section 4460 Related Party

Transactions - DefinitionsA r el at ed party tran s action is a transfer of economic resources or obligations between related

parties, or the provision of services by one party to arelated party, regardless of whether any considerationis exchanged.

The parties to the transaction are related prior to thetransaction. When the relationship arises as a result of the transaction, the transaction is not one betweenrelated parties.


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Examples Of Related Parties An entity that directly, or indirectly through one or more

intermediaries, controls, or is controlled by, or is under common control with, the reporting organization.

Management: any person(s) having authority andresponsibility for planning, directing and controlling theactivities of the reporting organization. (Managementwould include the directors, officers and other personsfulfilling a senior management function.)

An individual that has either significant influence or jointcontrol over the reporting organization.

An individual who directly, or indirectly through one or more intermediaries, controls the reporting organization.


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Related Party Disclosure

Paragraph 4460.07 An organization should disclosethe following information about its transactions withrelated parties:

(a) a description of the relationship between thetransacting parties;

(b) a description of the transaction(s), including those for which no amount has been recorded;

(c) the recorded amount of the transactions classified by

financial statement category; (d) the measurement basis used for recognizing the

transaction in the financial statements;


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Related Party Disclosure

Paragraph 4460.07 An organization shoulddisclose the following information about itstransactions with related parties:

.. (e) amounts due to or from related parties and the terms

and conditions relating thereto; (f) contractual obligations with related parties, separate

from other contractual obligations; (g) contingencies involving related parties, separate from

other contingencies.


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International Convergence

The IA SB does not deal withNPOs

The CICA has not indicatedwhat will happen to Section4400 through 4460 at thechangeover date.


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CAA Chapter 11

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