Introduction to NonProfit Accounting and Financial Reporting Governmental - GASB Private - FASB AICPA Audit Guides IRS - Tax Exempt

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Introduction to NonProfit Accounting and
Financial ReportingGovernmental -
GASBPrivate - FASBAICPA Audit GuidesIRS - Tax
Exempt

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• Nongovernmental
• FASB 116 and 117AICPA 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

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FASB Statements 116 117

• 116 Accounting for Contributions Received and
  Contributions Made
• 117 Financial Statements of Not-for-Profit
  Organizations

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Scope - for FASB 116/117 All Non-Governmental
NFPs

• Voluntary Health and Welfare
• Higher Education
• Other Nonprofits
• Healthcare Providers

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Effective 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

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FASB 116 Overview

• Affects three broad areas
• Recognition of Contributions
• Classification of Contributions
• Expiration of Donor Restrictions

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Definitions of Terms

• Nonreciprocal 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
  organizations mission

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Types of Transactions defined 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

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Types of Contributions

• Unconditional gifts
• Conditional gifts
• Unconditional promises to give
• Conditional promises to give
• Contributed services
• Contributed collection items

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Recognition of Contributions

• 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

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Contributed 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

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Contributed 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

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Contributions may be restricted or unrestricted

• Permanently restricted support
• Temporarily restricted support
• Unrestricted support
• Exceptions
• simultaneous period contributions
• implied time restrictions

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Expiration of Donor Restrictions

• Recognized as a reclassification
• Recognized in the period of satisfaction
• Use of restricted before unrestricted funds
• Exception
• Restrictions on long-lived assets

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Restrictions on Long-Lived Assets

• Reclassified when put in service
• Reclassified over the useful life

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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

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Required 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

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Transition

• Retroactive application
• Prospective application
• cumulative effect of change

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FASB 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

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Approach

• Does not prescribe or prohibit any particular
  display format
• overriding display characteristics is flexibility
• Establishes minimum display requirements

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Basic Financial Statements

• Statement of Financial Position
• Statement of Activities
• Statement of Cash Flows
• Notes to financial statements

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Statement of Financial Position

• 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

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Statement of Activities (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

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Statement of Activities (b)

• Alternative presentation permitted
• Single column statement format
• Multi-column format
• Two-statement approach

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Statement of Activities (c)

• Revenues and expenses generally reported gross
• Netting of investment revenue related expenses
  permitted (disclose expenses)
• Gains losses may be netted

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Statement of Activities (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

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Statement of Activities (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

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Statement of Activities (f)

• Functional Classifications
• Program Services
• Supporting Services
• Management General activities
• Fund-raising activities
• Membership-development activities
• Joint Cost Allocation follow AICPA SOP 87-2

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Statement of Cash Flows

• 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

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Transition

• 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

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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

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Net Asset Classifications
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New Audit Guides (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

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New AICPA Audit and Accounting 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

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Governmental Not-for-Profit Entities

• GASB 29The 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

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Accounting for Health Care

• GASB - Government owned
• FASB - private for profit and private nonprofit

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Current GAAP

• AICPA Audit Guide as superseded by FASB 116 and
  117
• GASB - ok to apply Audit Guide with special
  provisions for govt. sector

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Funds Structure

• General Funds - only one fund
• Restricted Funds -
• specific purpose fund
• plant replacement and expansion fund
• endowment funds

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Financial Statements

• Statement of Financial Position
• Statement of Activities
• Statement of Cash Flows

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Revenue

• Operating Revenue - ongoing major/central
• Patient Service Revenue
• Resident Service Revenue
• Other Operating Revenue
• Nonoperating Revenue - peripheral
• gains, gifts, grants,investment income

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Expenses

• 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.

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Examples

• Text
• Handout
• ( with or without funds )

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Major differences

• Timing of recognition of revenue for
  contributions - governments can wait
• Financial statements - may be some differences in
  terminology and format

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New Standards

• Private
• In Specific Purpose Fund
• Cash xx
• Other Oper Revenue-
• TR- Contrib. xx
• Reclassif Out -TR xx
• Cash xx
• In General Funds
• Cash xx
• Reclassif In - Unrestr xx

• Govt
• In Specific Purpose Fund
• Cash xx
• Fund Balance xx
• Fund Balance xx
• Cash xx
• In General Funds
• Cash xx
• Other Operating Revenue/ Nonoperating Revenue xx

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Analysis

• Consistency Between Goals/Resources
• Intergenerational Equity
• Match Between Sources and Uses of Resources
• Resource Sustainability
• Comparative Statistics

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Southeast Hospice Center

• 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 Centers 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
  organizations performance.
• What kind of entity is this?
• What are the elements of this nonprofit
  organizations Total Quality Management program
  that may differ from that of a profit
  organization?
• How can the GASBs project on Service Efforts and
  Accomplishments be helpful in identifying output
  performance measures?
• Which specific outcome measures might be useful
  for this hospice organization?

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Discussion

• wide set of interested parties
• accounting software capabilities
• GASB Concepts No. 2

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SEA 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

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College and University Accounting

• GASB
• FASB
• AICPA Audit Guide

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GASB

• Governmentally owned (public)
• traditional AICPA model - 2 yr. schools
• governmental model (Chpts. 1-13) - most

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Funds

• Current funds (unrestricted restricted)
• Loan funds
• Endowment and similar funds
• Annuity and life income funds
• Agency funds
• Plant funds

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Current Funds

• Revenues
• Expenditures
• Transfers
• Assets, Liabilities, Fund Balances

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Endowment Similar Funds

• Permanent
• Term
• Quasi-endowment

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Annuity and Life Income

• actuarial assumptions
• IRS regulation

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Agency Funds

• agent of others
• collection, custodianship, disbursement
• no Fund Balances

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Plant Funds Group

• Unexpended Plant Funds
• Funds for Renewals and Replacements
• Funds for Retirement of Indebtedness
• Investment in Plant

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Illustrative Transactions Financial Statements
(AICPA model)

• Balance Sheet
• Statement of Current Funds Revenue, Expenditures,
  and Other Changes
• Statement of Changes in Fund Balances

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Private Colleges and Universities

• FASB Statement No. 93 - depreciation
• FASB Statement No. 116 - contributions
• FASB Statement No. 117 - Financial Statements

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FASB 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

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FASB No. 117

• Statement of Financial Position
• Statement of Activities
• Statement of Cash Flows