Advanced Accounting Issues for Nonprofits May 17, vs GAAP Reporting: What s the Difference? Presented by: Dan Miller, CPA, Shareholder

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1 Dan Miller, CPA, Shareholder, Business Unit Director Gifts in Kind/Contributed Services/Noncash Contributions Net Assets and Fund Balances Investment Income and Investment Expense Special Events Record as contributions if: 1. The NFP has discretion in using or distributing the gifts in kind (variance power) 2. The NFP has risks and rewards of ownership Record at fair value at date of gift PAGE 1

2 Recognition criteria (must meet one): 1. They create or enhance a nonfinancial asset (land, buildings, materials, supplies, etc.) 2. They require specialized skills, are provided by individuals with those skills, and would typically need to be purchased if not provided by donation (e.g. lawyers, accountants, teachers, doctors, electricians) Reporting on line 1, Part VIII of 990, per SFAS 116 is acceptable, per 990 instructions But the value of donated services or use of materials, equipment, or facilities may not be reported Contributions do not include: Donated services such as: Advertising space Broadcast air time (including PSAs) Professional services or discounts on services Donations of use of materials, equipment, or facilities Part III, Statement of Program Service Accomplishments, Page 2, Form 990 Organization can report the amount of any donated services or use of equipment or facilities it received in connection with a specific program service Use narrative lines, do not include these amounts in expense, grant lines, or revenue, on 4a 4e PAGE 2

3 If the amount of noncash contributions exceeds $25,000, must answer Yes to Part IV, line 29 and complete and attach schedule M, Noncash Contributions Caution: Museums and other organizations that do not capitalize their collections in accordance with FASB ASC (Formerly SFAS 116) should not report an amount on line 1 of Part VIII, nor any amount at Schedule M Schedule M is required regardless of whether the organization reported revenues from receiving contributions of art, historical treasures, qualified conservation contributions (check Yes line 32b and give explanation) On Balance Sheet of 990, Part X, Page 11, the IRS does not require reporting per SFAS 117 (ASC 958) Caution: some states do require SFAS 117 presentation Check the box on line 27, that you are using SFAS 117 reporting If checked, must report net assets as unrestricted, temporarily restricted, or permanently restricted If unchecked, then report net assets as capital stock, paid-in capital, retained earnings FASB will be making a change in reporting of net assets, reducing from 3 classes to 2 classes Net assets without donor-imposed restrictions Net assets with donor-imposed restrictions This change would not change how nonprofits report revenue and expenses on Form 990, but may affect how organizations that follow FASB ASC 958 report net assets IRS has not addressed this issue yet PAGE 3

4 Per GAAP, unrealized gains and losses are recognized in the Statement of Changes in Net Assets (income statement) For tax purposes, unrealized gains and losses are not included on Statement of Revenue on Form 990, page 9 Instead, unrealized gains and losses appear on Form 990, page 12, Part XI, line 5 as part of the reconciliation of net assets (i.e. part of equity) Part XII asks Financial Statements and Reporting questions Entity s type of accounting method (cash, accrual, other)? Were financials compiled, reviewed, or audited? Were financials separate or consolidated? If federal awards received, did they require a single audit? If answering yes to question on form 990, Part IV, line 12a Did organization obtain separate, independent, audited financial statements for the tax year? If yes, complete Schedule D Parts XI & XII These areas report book to tax differences Reconciles total revenues and total expenses from financial statement total to the totals per the 990 PAGE 4

5 Often times for financial statement purposes, organizations recognize interest income, dividend income, and realized and unrealized gains and losses as single line item, investment income, disclose break down in footnotes For Tax Purposes: Interest and dividends are reported on line 3 of Part VIII, Statement of Revenue Realized gains and losses are reported on lines 7a through 7d, Part VIII, Statement of Revenue Unrealized gains and losses are reported on line 5, Part XI, 990 (as mentioned earlier) Breakout is designed to provide better understanding for the user Financial statement presentation shows investment expense either reported at gross on the face of Statement of Changes in Net Assets or reported at net, but disclosed in the footnotes For tax purposes, report investment counseling or portfolio management fees on line 11f, Part IX, Statement of Functional Expenses Do not include brokerage fees and commissions that are sales expenses, report on line 7b, Part VIII Statement of Revenue Purpose of special events is to raise money through contributions or through direct benefit transactions with attendee Income is part exchange transaction and part contribution Generally maintain detail of transactions by event Costs usually consist of two types: Costs directly attributable to the benefit received by event attendee (food, drink, gift) Costs directly associated with promoting and conducting event PAGE 5

6 Special Event Revenue: Allocate ticket price between exchange transaction and contribution Exchange transaction is measured at the fair value of the direct donor benefit (fair value of dinner, fair value of entertainment, etc.) Only with peripheral or incidental events can you net direct costs against the receipts. Otherwise, ongoing and major activities should report gross revenue and expenses Costs of direct donor benefits (a meal, theater ticket) that are not program related should be reported as a separate category, such as costs of direct benefits to donors Costs of direct donor benefits in transactions other than exchange transactions (such as a free special event) should be reported as fundraising expenses Some special events are Joint Activities and follow special reporting guidance PAGE 6

7 Tax Presentation: Income is calculated based on the retail value of the benefit received by the attendee, this is different than gross proceeds Any amount received in excess of the retail value is considered to be a contribution and is not included in special events income on line 8a of Part VIII Statement of Revenue Instead it is reported on line 1c of Part VIII, Statement of Revenue Direct expenses are reported on line 8b, reporting a subtotal at 8c, net income from fundraising events If benefit received by attendee is nominal or insubstantial, then entire amount is considered a contribution Question 18, on page 3, Part IV, of 990 may require additional disclosure at Schedule G if organization reported more than $15,000 total of fundraising event gross income and contributions Required to then complete Part II of Schedule G PAGE 7

8 List two largest fundraising events with gross receipts greater than $5,000, all others go in column C, other events Start by listing on line 1 gross receipts, including contributions, contributions portion of gross revenue will be subtracted on line 2 Expenses - must disclose total amount of cash prizes, FMV of noncash prizes given out, rent or lease paid, food and beverage expense, entertainment cost, and all other direct costs Organization must retain an itemized list of other direct costs in its records PAGE 8