NPO 1 One-Hour

04/28/23 www.cpafirmsupport.com 1

Key Accounting & Reporting Issues for Nonprofits: Introduction, Overview and the Statement of Financial Position

Presented by Larry L. Perry, CPA CPA Firm Support Services, LLC


Learning Objectives

Describe fundamental definitions and operating principles of nonprofit organizations

Review SFASs for nonprofit organizations Describe basic financial statements and footnotes

presentations for nonprofit organizations Explain principles of accounting and reporting for

accounts in the statement of financial position


Definitions of Nonprofit Organizations

SFAS Nos. 116 and 117 (ASC 958)

Examples of non-profit organizationso Types of nongovernmental, nonprofit organizationso Type of voluntary health and welfare organizations

Internal Revenue Serviceo Common IRS classifications


SFAS No. 116 (ASC 958)—Accounting for Contributions

Contributions received are recognized as revenues in the period received at fair valueso Includes unconditional promises to give

Contributions made are recognized as expenses in the period made at their fair valueso Includes unconditional promises to give

Conditional promises are recognized when they become unconditional

Restricted contributions are recorded and recognized according to time and purpose restrictions

In-kind contributions of materials, professional services, and free space are recorded at fair values when received

Contributions of collectibles are recorded as revenues at fair values if NPO capitalizes collectibles


SFAS No. 117 (ASC 958)—Financial Statements for NPOsRequires:

• Statement of Financial Position• Statement of Activities• Statement of Cash Flows• Statement of Functional Expenses (required

only for VHWOs-but can be elected by others)• Classifications are based on the existence or

absence of donor-imposed restrictions


SFAS No. 124 (ASC 958)—Accounting for Certain Investments Requires fair value accounting and reporting

for:o Investments in equity securities with readily

determinable fair valueso All investments in debt securities

Requires certain disclosures about investments, including investment returns


Polling Question No. 1

Which of the following are required by nonprofit GAAP? A. Financial statements are required to be

comparative B. SAS No. 117 requires fund accounting C. Net assets classifications are based on donor

restrictions D. None of the above


Accounting Standards—Cash and Cash Equivalents Same descriptions are required on statements of

financial position and cash flows Restricted amounts should be presented

separately Only includes cash equivalents with maturity dates

of three months or less at time of purchase (to prevent fair value from changing)


Promises to Give

Include oral and written agreements

Recipient has right to expect transfer of assets in future and donor has enforceable obligation to give

Donors receive no tangible benefits

Recorded net of estimates of uncollectible amounts in receivables and revenues


Intentions to Give

Promises that aren’t legally enforceable are intentions to give

Revocable or modifiable trust instruments are normally intentions to give

Intentions to give are not recorded but may be disclosed


Unconditional & Conditional Promises to Give Promise must be evidenced in some way

o Identification of the donoro Contact informationo Amount of the gift

If an unconditional promise is for a future period, it would be recorded as a restricted gift

Unconditional promises would be reclassified to unrestricted when the time restriction is reached, not when payment is received

Promises to give receivable in less than one year are recorded at their fair value

Cash promises beyond one year would be discounted to present value Promise to give marketable securities would be valued under SFAS No.

157 (ASC 820) Promises to give non-financial assets in a current year would be

recorded at net realizable value; best estimate of fair value would used for future gifts

Conditional promises become unconditional when condition is satisfied (such as for a matching grant)



Which of the following criteria are necessary for recording promises to give and contributions revenue? A. Non-cash contributions must be received or

promised B. Contributions must be unconditional C. A promise must be legally enforceable D. All of the above E. None of the above


Accounts Receivable & Inventories

Accounts receivable are recorded similar to for-profit entities

Inventorieso Nonprofit GAAP requires cost basis for

purchases, fair value for giftso Nonprofit GAAP permits estimates, averages

and approximations


Property and Equipment Purchases are recorded at cost Donations are recorded at fair value at date of gift Purchases with restricted funds or donations with restricted use

would be classified and disclosed as restricted net assets if the documentation of the gift specifies the restrictions

Gains or losses upon disposition would be unrestricted unless specified otherwise by donor

Donations with long-term restrictions are financing activities in statement of cash flows

First-time capitalization of property and equipment should be recorded at historical cost for purchases and fair value at date of donation.

Fully-depreciated assets’ cost and accumulated depreciation may or may not be recorded at initial capitalization

Depreciation is required


Collections

Include works of art, rare books and documents, and other items held for display or study

May be acquired with restricted funds and should be accounted for in accordance with donor restrictions

May be capitalized or not in accordance with reporting entity’s policy—all or none

May record contributions only if policy is to capitalize First-time capitalization permits use of valuation information

that is easiest to obtain Collections are not normally depreciated


Liabilities

Accounting principles are generally the same as for-profit GAAP—short and long liabilities

Guaranteeso Non-contingent guarantees must be recorded under

FIN 45 (ASC 460)

Deferred revenue—recorded when earned and matched with related costs

Refundable advances—funds received from third party (usually grants) and related goods or services have not be provided


Net Assets and Reclassifications

SAS No. 117 (ASC 958) requires:o Unrestricted (may include board designations)o Temporarily restricted as to time or purposeo Permanently restricted by agreement

Temporarily restricted net assets are reclassified to unrestricted when time or purpose restrictions are satisfied. Expenses are recorded as unrestricted.

Income from permanently restricted net assets is classified as unrestricted unless specified otherwise by donor.


Polling Question No. 3 Which of the following are true for non-profit GAAP?

A. Valuations for inventories can be estimated B. Capitalized art work would not be depreciated C. Promises to give are presented net of

uncollectibles D. Net assets accounting is based on donor

restrictions E. All the above F. None of the above


Illustrative Statement of Financial Position—Key Issues Presentation can be classified or non-classified,

whichever is most meaningful Asset restrictions must be noted on statement or in a

footnote Comparative is most meaningful but not required Line item references to footnotes aren’t required but

bottom reference to notes is required Board designations of unrestricted net assets can be

disclosed on statement or in footnotes

www.cpafirmsupport.com Slide 18


Illustrative Disclosures for Statement of Financial Position Note A

Basis of Presentation Inventory of Merchandise and Supplies Property and Equipment Use of Estimates Cash

Note B—Investments Note C—Property and Equipment Note D—Related Party Transactions Note E—Debt Obligations Note F—Restricted Net Assets



Non-profit GAAP is presented in Topic 958 of the FASB Accounting Standards Codification and in updated pre-codification SFASs A. True B. False


The End What to do if you want more

Email Larry Perry: [email protected] with questions

Visit www.cpafirmsupport.com for webcast resources Read Larry Perry’s weekly articles/blog, Today’s World of

Audits, at www.accountingweb.com under the A&A and Bloggers tabs for small audit and other subjects

Watch for Larry Perry’s Performing Small Audits, Reviews and Compilations for Entities using the AICPA’s FRF for SMEs from Wiley & Sons in 2015

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NPO 1 One-Hour

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