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