Introduction to NonProfit Accounting and Financial Reporting Governmental - GASB Private - FASB...
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Transcript of Introduction to NonProfit Accounting and Financial Reporting Governmental - GASB Private - FASB...
Introduction to NonProfit Introduction to NonProfit Accounting and Accounting and
Financial ReportingFinancial Reporting
Governmental - GASBGovernmental - GASBPrivate - FASBPrivate - FASB
AICPA Audit GuidesAICPA Audit GuidesIRS - Tax ExemptIRS - 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 & FASB Statements 116 & 117117
116: “Accounting for Contributions Received and Contributions Made”
117: “Financial Statements of Not-for-Profit Organizations”
Scope - for FASB Scope - for FASB 116/117116/117 All Non-Governmental All Non-Governmental NFPsNFPs
Voluntary Health and Welfare Higher Education Other Nonprofits Healthcare Providers
Effective DateEffective 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 OverviewFASB 116 Overview
Affects three broad areas:
Recognition of Contributions
Classification of Contributions
Expiration of Donor Restrictions
Definitions of TermsDefinitions of TermsNonreciprocal 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 Types of Transactions defined in FASB 116defined 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 ContributionsTypes of Contributions
Unconditional gifts Conditional gifts Unconditional promises to give Conditional promises to give Contributed services Contributed collection items
Recognition of Recognition of ContributionsContributions
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 ServicesContributed 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 CollectionsContributed 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 Contributions may be restricted or restricted or unrestrictedunrestricted
Permanently restricted support Temporarily restricted support Unrestricted support Exceptions:
simultaneous period contributions implied time restrictions
Expiration of Donor Expiration of Donor RestrictionsRestrictions
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 Restrictions on Long-Lived AssetsAssets
Reclassified when put in service
Reclassified over the useful life
Examples:Examples: Exchange transaction:
Cash xx Revenue 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 DisclosuresRequired 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 services Nature and extent of services received Programs for which the services were received Amount of services recognized as revenues
TransitionTransition
Retroactive application
Prospective application:
cumulative effect of change
FASB 117 OverviewFASB 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
ApproachApproach
Does not prescribe or prohibit any particular display format
overriding display characteristics is flexibility
Establishes minimum display requirements
Basic Financial Basic Financial StatementsStatements
Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Notes to financial statements
Statement of Financial Statement of Financial PositionPosition
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 Statement of Activities (a)(a)
Minimum display: Amount 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 Statement of Activities (b)(b)
Alternative presentation permitted:
Single column statement format Multi-column format Two-statement approach
Statement of Activities Statement of Activities (c)(c)
Revenues and expenses generally reported gross:
Netting of investment revenue & related expenses permitted (disclose expenses)
Gains & losses may be netted
Statement of Activities Statement of Activities (d)(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 donor-imposed restricted or law
Statement of Activities Statement of Activities (e)(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 Statement of Activities (f)(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 Statement of Cash FlowsFlows
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
TransitionTransition
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?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 ClassificationsNet Asset Classifications
Unrestricted TemporarilyRestricted
PermanentlyRestricted
Unrestricted Current x
Restricted Current x x
Plant x x xLoan x x x
Endowment x x x
Annuity & Life x x x
Agency n/a n/a n/a
A g e n c y
* * New Audit Guides New Audit Guides (EDs)(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 New AICPA Audit and Accounting GuidanceAccounting 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 Governmental Not-for-Profit EntitiesEntities 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 CareAccounting for Health Care
GASB - Government ownedFASB - private for profit and
private nonprofit
Current GAAPCurrent GAAP AICPA Audit Guide as superseded
by FASB 116 and 117
GASB - ok to apply Audit Guide with special provisions for govt. sector
Funds StructureFunds Structure General Funds - only one fund
Restricted Funds - specific purpose fund plant replacement and expansion
fund endowment funds
Financial StatementsFinancial Statements Statement of Financial Position
Statement of Activities
Statement of Cash Flows
RevenueRevenue Operating Revenue - ongoing
major/central Patient Service Revenue Resident Service Revenue Other Operating Revenue
Nonoperating Revenue - peripheral gains, gifts, grants,investment income
ExpensesExpenses 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.
ExamplesExamples Text
Handout
( with or without funds )
Major differencesMajor differences Timing of recognition of revenue
for contributions - governments can wait
Financial statements - may be some differences in terminology and format
New StandardsNew Standards Govt:In Specific Purpose Fund:Cash xx
Fund Balance xxFund Balance xx
Cash xx
In General Funds:Cash xx
Other Operating Revenue/ Nonoperating Revenue xx
Private:In Specific Purpose Fund:Cash xx
Other Oper Revenue- TR- Contrib. xx
Reclassif Out -TR xxCash xx
In General Funds:Cash xx
Reclassif In - Unrestr xx
AnalysisAnalysis Consistency Between
Goals/Resources Intergenerational Equity Match Between Sources and Uses
of Resources Resource Sustainability Comparative Statistics
Southeast Hospice Southeast Hospice CenterCenter
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?
DiscussionDiscussion wide set of interested parties
accounting software capabilities
GASB Concepts No. 2
SEA MeasuresSEA 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 College and University AccountingAccounting
GASBFASB
AICPA Audit Guide
GASBGASB
Governmentally owned (public)
traditional AICPA model - 2 yr. schools
governmental model (Chpts. 1-13) - most
FundsFunds
Current funds (unrestricted & restricted)
Loan funds Endowment and similar funds Annuity and life income funds Agency funds Plant funds
Current FundsCurrent Funds
Revenues
Expenditures
Transfers
Assets, Liabilities, Fund Balances
Endowment & Similar Endowment & Similar FundsFunds
Permanent
Term
Quasi-endowment
Annuity and Life IncomeAnnuity and Life Income
actuarial assumptions
IRS regulation
Agency FundsAgency Funds
agent of others collection, custodianship,
disbursement
no Fund Balances
Plant Funds GroupPlant Funds Group
Unexpended Plant Funds Funds for Renewals and
Replacements Funds for Retirement of
Indebtedness Investment in Plant
Illustrative TransactionsIllustrative Transactions& Financial Statements & Financial Statements (AICPA model)(AICPA model)
Balance Sheet Statement of Current Funds
Revenue, Expenditures, and Other Changes
Statement of Changes in Fund Balances
Private Colleges and Private Colleges and UniversitiesUniversities
FASB Statement No. 93 - depreciation
FASB Statement No. 116 - contributions
FASB Statement No. 117 - Financial Statements
FASB No. 116FASB 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. 117FASB No. 117
Statement of Financial Position
Statement of Activities
Statement of Cash Flows