KEY ACCOUNTING ISSUES FOR NON-PROFIT ORGANIZATIONS

Transcription

1 KEY ACCOUNTING ISSUES FOR NON-PROFIT ORGANIZATIONS By Larry L. Perry, CPA CPA Firm Support Services, LLC (CPA Practice Aids, LLC) 1

2 This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. Practice aids, audit programs and audit correspondence are illustrative only. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. The contents of these materials have not been subjected to peer review by the AICPA or any of its representatives. By incorporating the concepts, philosophies, suggestions and practice aids included with these materials into to a CPA firm s system of quality control, the user accepts full responsibility for their accuracy and completeness. 2

3 ABOUT THE AUTHOR: LARRY L. PERRY, CPA With 40 years' experience as a CPA, Larry is a nationally known author of accounting and auditing manuals, a professional continuing education instructor and author, and a consultant to CPA firms. He is managing member of CPA Firm Support Services, LLC, ( an organization providing live webcasts and self-study courses to small- to medium-sized CPA firms. Larry writes a weekly article on AccountingWeb.com, Today s World of Audits, focusing on accounting and auditing subjects applicable to small- and medium-sized entities. 3

4 TABLE OF CONTENTS PART 1 INTRODUCTION, OVERVIEW AND THE STATEMENT OF FINANCIAL POSITION... 8 LEARNING OBJECTIVES... 8 DEFINTIONS OF NONPROFIT ORGANIZATIONS... 8 ASC Topic Examples of Nonprofit Organizations... 8 Voluntary Health and Welfare Organizations... 9 Internal Revenue Service Definition of Nonprofit Organizations... 9 IRS Classifications for Types of Nonprofit Organizations KEY SFASS AFFECTING NONPROFIT ORGANIZATIONS FASB Summary of Statement No. 116 (Topic 958) Accounting for Contributions Received and Contributions Made) FASB Summary of Statement No. 117 (Topic 958) Financial Statements of Not for Profit Organizations FASB Summary of Statement No. 124 (Topic 958) Accounting for Certain Investments Held by Not for Profit Organizations FASB Summary of Statement No. 157 (Topic 820) Fair Value Measurements Requirements of This Statement ISSUES RELATED TO REPORTING FRAMEWORKS NONPROFIT ORGANIZATION FINANCIAL STATEMENTS Statement of Financial Position Statement of Activities Statement of Cash Flows Statement of Functional Expenses ILLUSTRATIVE FINANCIAL STATEMENTS AND FOOTNOTES STATEMENT OF FINANCIAL POSITION STATEMENT OF ACTIVITIES STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Summary of Significant Accounting Policies Method of Accounting: Basis of Presentation: Unrestricted Net Assets: Temporarily Restricted Net Assets: Permanently Restricted Net Assets: Inventory of Merchandise and Supplies Property and Equipment Revenue Recognition Income Taxes Use of Estimates Concentrations Risk Cash NOTE B INVESTMENTS NOTE C PROPERTY AND EQUIPMENT NOTE D RELATED PARTY TRANSACTIONS NOTE E DEBT OBLIGATIONS

5 NOTE F RESTRICTED NET ASSETS NOTE G OPERATING LEASE NOTE H DONATED SERVICES NOTE I NON CASH TRANSACTIONS NOTE J JOINT COST ALLOCATION ACCOUNTING STANDARDS FOR ASSETS, LIABILITIES, AND NET ASSETS Statement of Financial Position Assets Cash and Cash Equivalents: Receivables: Promises to Give Intentions to Give Unconditional and Conditional Promises to Give Accounts Receivable Inventories Property and Equipment Collections Depreciation STATEMENT OF FINANCIAL POSITION LIABILITIES Guarantees Deferred Revenue Refundable Advances STATEMENT OF FINANCIAL POSITION NET ASSETS Reclassifications CONCLUSION PART 2 REVENUES RECOGNITION LEARNING OBJECTIVES KEY SFASS AFFECTING REVENUE RECOGNITION FASB Summary of Statement No. 116 (Topic 958) Accounting for Contributions Received and Contributions Made Accounting Standards Updates ASU No Why Issued Who is Affected Main Provisions Alternatively, if the donor restricted the use of the contributed resources to long term purposes, those cash receipts would be classified as cash flows from financing activities Otherwise, receipts from the sale of donated securities would be classified as cash flows from investing activities by the NPO Effective Date ASU Why Issued? Who is Affected? Main Provisions Effective Date UNDERSTANDING REVENUE RECOGNITION Revenues and Gains Overview: Not for Profit Entities Revenue Recognition General: Contributions Received: STATEMENT OF ACTIVITIES REVENUES Contributions Restricted Contributions Temporary and Permanent Restrictions:

6 Unrestricted Support: Restrictions on Contributions Met in the Same Year: Designations Imposed by the Board of Directors: Donated Materials or Merchandise: Donated Long lived Assets and Free Use of Facilities: Donated Services: Agency Transactions: Exchange Transactions: Recognizing Other Accrual Basis Revenues: Special Events Service Fees/Dues Sales of Merchandise and Publications Third Party Reimbursements ASSERTIONS, INTERNAL CONTROLS AND REVENUE RECOGNITION Entity Level Controls Activity level Controls An Illustration of Effective Counting Procedures for Cash Receipts (Activity Level Controls) Procedures for Counting Mail Receipts, Can Collections, Offerings and Other Cash Receipts General Notes Specific Counting Procedures CONCLUSION PART 3 EXPENSE ACCOUNTING LEARNING OBJECTIVES NONPROFIT ORGANIZATION FINANCIAL STATEMENTS NONPROFIT GAAP FOR EXPENSES Types of Expenses Accounting and Presentation Classification of Particular Costs COST ALLOCATIONS IN THE STATEMENT OF ACTIVITIES Introduction Accounting for Costs of Joint Activities that Include Fundraising The Fundraising Presumption: Overcoming the Fundraising Presumption: Purpose Criterion Audience Criterion Content Criterion A Chronology of the Application of Criteria to Overcome the Fundraising Presumption: An Example of Application of the Purpose, Audience and Content Criterion COST ALLOCATION METHODS Physical Units Method Relative Direct Cost Method Stand Alone Joint Cost Allocation Method BASES FOR COST ALLOCATIONS STATEMENT OF FUNCTIONAL EXPENSES STATEMENT OF FUNCTIONAL EXPENSES ILLUSTRATIVE FOOTNOTES DISCLOSURE FOR ALLOCATION OF COSTS Note Y. Joint Cost Allocation INTERNAL CONTROLS AND EXPENSE RECOGNITION

7 Entity Level Controls Activity Level Controls SUMMARY OF DIFFERENT PRESENTATION AND DISCLOSURE REQUIREMENTS FOR NPOS Statement of Financial Position Statement of Activities Statement of Cash Flows NONPROFIT GAAP VS. FORM 990 ACCOUNTING METHODS CONCLUSION NON-PROFIT ACCOUNTING AND REPORTING GLOSSARY