From financial reporting to revenue recognition to grants and contracts to auditor report changes, you have a lot going on in the not-for-profit financial arena right now. Whether you're already an expert in NFP audit and accounting standards or just getting started, this is the practical guidance you need. This must-have resource for nonprofits accounting and auditing professionals is an essential reference that will assist you with the unique aspects of accounting and financial statement preparation and auditing for not-for-profit entities.
It will help you with the following
- Understand and implement recent updates and changes, including those related to financial reporting, revenue recognition, and grants and contracts
- Gain a full understanding of the accounting issues unique to not-for-profit entities
- Assist in the implementation of auditor report changes.
Table of Contents
1 Introduction .01-.27
Scope .01-.12
Entities .01-.06
Basis of Accounting .07-.10
Level of Service .11-.12
GAAP for NFPs .13-.19
Fund Accounting and Net Asset Classes .20-.25
Other Resources for Financial Reporting by NFPs .26-.27
2 General Auditing Considerations .01-.160
Overview .01-.02
Purpose of an Audit of Financial Statements .03-.08
Audit Risk .05-.08
Terms of Engagement .09-.11
Audit Planning Considerations .12-.70
Group Audits .14-.18
Materiality .19-.27
Related-Party Transactions .28-.31
Consideration of Errors and Fraud .32-.52
Compliance With Laws and Regulations .53-.67
Processing of Transactions by Service Organizations .68-.70
Use of Assertions in Assessment of Risks of Material Misstatement .71-.75
Risk Assessment Procedures .76-.99
Risk Assessment Procedures and Related Activities .78-.80
Analytical Procedures .81-.83
Discussion Among the Audit Team .84
Understanding of the Entity and Its Environment, Including the Entity’s Internal Control .85-.99
Using Risk Assessment to Design Further Audit Procedures .100-.122
Identifying and Assessing the Risks of Material Misstatement .101-.103
Risks That Require Special Audit Consideration .104-.105
Designing and Performing Further Audit Procedures .106-.121
Evaluating the Sufficiency and Appropriateness of Audit Evidence .122
Evaluation of Misstatements Identified During the Audit .123-.125
Communication With Those Charged With Governance .126-.132
Completing the Audit .133-.160
Going-Concern Considerations .133-.143
Written Representations .144-.152
Audit Documentation .153-.160
3 Financial Statements, the Reporting Entity, and General Financial Reporting Matters .01-.202
Introduction .01-.05
Statement of Financial Position .06-.28
Effects of Restrictions, Designations, and Other Limitations on Liquidity .09-.23
Classification of Net Assets .24-.28
Statement of Activities .29-.45
Reporting Expenses by Nature and Function .44-.45
Statement of Cash Flows .46-.63
Liquidity and Availability Disclosure .60-.63
Comparative Financial Information .64-.66
Reporting of Related Entities, Including Consolidation .67-.130
Relationships With Another NFP .72-.80
Relationships With a For-Profit Entity .81-.108
Consolidation of a Special-Purpose Leasing Entity .109-.110
Consolidated Financial Statements .111-.128
Parent-Only and Subsidiary-Only Financial Statements .129
Combined Financial Statements .130
Mergers and Acquisitions .131-.144
Merger of Not-for-Profit Entities .133-.134
Acquisition by a Not-for-Profit Entity .135-.144
Collaborative Arrangements .145-.146
The Use of Fair Value Measures .147-.180
Definition of Fair Value .150-.156
Valuation Approaches and Techniques .157-.163
The Fair Value Hierarchy .164-.167
Additional Guidance for Fair Value Measurement in Special Circumstances .168-.176
Disclosures .177
Fair Value Option .178-.180
Financial Statement Disclosures Not Considered Elsewhere .181-.193
Noncompliance With Donor-Imposed Restrictions .182-.184
Risks and Uncertainties .185
Subsequent Events .186-.189
Related Party Transactions .190-.193
Auditing .194-.201
Financial Statement Close Process .195-.196
Operating and Nonoperating Classifications in the Statement of Activities .197
Consolidation .198
Liquidity .199
Mergers and Acquisitions .200
Noncompliance With Donor-Imposed Restrictions .201
Supplement A - Flowcharts .202
4 Cash, Cash Equivalents, and Investments .01-.112
Cash and Cash Equivalents .01-.04
Investments Discussed in This Chapter .05-.10
Initial Recognition and Measurement of Investments .11-.12
Valuation of Investments Subsequent to Acquisition .13-.46
Equity Securities (Other Than Consolidated Subsidiaries and Equity Securities Reported Under the Equity Method) and Debt Securities .17-.19
Investments That Are Accounted for Under the Equity Method or a Fair Value Election .20-.30
Derivative Instruments .31-.39
Other Investments .40
Decline in Fair Value After the Date of the Financial Statements .41
Fair Value Measurements .42-.46
Investment Income and Expenses .47-.51
Unrealized and Realized Gains and Losses .52-.55
Investments Held as an Agent .56
Investment Pools .57-.63
Self-Managed Investment Pools .57
Investment Pools Managed by a Financially Interrelated Entity .58
Investment Pools Managed by Third Parties .59-.63
Endowment Funds .64-.75
Financial Statement Presentation .76-.84
Cash and Cash Equivalents .76-.79
Investments .80-.84
Disclosures .85-.96
Auditing .97-.111
Endowment Funds .102
Investment Pools .103-.108
Audit Objectives and Procedures .109-.111
Appendix A - Determining Fair Value of Alternative Investments .112
5 Contributions Received and Agency Transactions .01-.240
Introduction .01-.04
Distinguishing Contributions From Other Transactions .05-.60
Agency Transactions .07-.22
Variance Power .23-.27
Financially Interrelated Entities .28-.32
Similar Transactions That Are Revocable, Repayable, or Reciprocal .33-.38
Exchange Transactions .39-.60
5 Contributions Received and Agency Transactions - continued Core Recognition and Measurement Principles for Contributions .61-.87
Recognition Principles .62-.73
Measurement Principles .74-.77
Recognition If a Donor Imposes a Condition .78-.80
Recognition If a Donor Imposes a Restriction .81-.87
Additional Accounting Considerations for Certain Contributions .88-.177
Promises to Give .88-.109
Contributed Services .110-.115
Special Events .116-.120
Gifts in Kind .121-.147
Contributed Items to Be Sold at Fundraising Events .148-.149
Contributed Fundraising Material, Informational Material, or Advertising, Including Media Time or Space .150-.161
Contributed Utilities and Use of Long-Lived Assets ..162-.164
Guarantees .165-.169
Below-Market Interest Rate Loans .170-.172
Contributed Collection Items .173
Split-Interest Agreements .174
Administrative Costs of Restricted Contributions .175-.177
Measurement Principles for Contributions Receivable .178-.210
Present Value Techniques .181-.184
Organization of the Measurement Guidance .185
Initial Measurement .186-.194
Subsequent Measurement .195-.210
Financial Statement Presentation .211-.213
Disclosures .214-.220
Illustrative Disclosures .220
Auditing .221-.238
Contributions Receivable .235-.237
Agency Transactions .238-.238
Appendix A - Excerpt From AICPA Financial Reporting White Paper Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities .239
Appendix B - Technical Questions and Answers About Financially Interrelated Entities .240
6 Split-Interest Agreements and Beneficial Interests in Trusts .01-.95
Introduction .01
Types of Split-Interest Agreements .02-.03
Recognition and Measurement Principles .04-.45
Use of Fair Value Measures .05-.06
6 Split-Interest Agreements and Beneficial Interests in Trusts - continued Recognition of Revocable Agreements .07
Recognition of Irrevocable Agreements .08-.12
Initial Recognition and Measurement of Unconditional Irrevocable Agreements Other Than Pooled Income Funds or Net Income Unitrusts .13-.27
Initial Recognition and Measurement of Pooled Income Funds and Net Income Unitrusts .28
Recognition and Measurement During the Agreement’s Term for Unconditional Irrevocable Agreements Other Than Pooled Income Funds or Net Income Unitrusts .29-.40
Recognition and Measurement During the Agreement’s Term for Pooled Income Funds and Net Income Unitrusts .41
Recognition Upon Termination of Agreement .42
Purchase of Annuity Contracts to Make Distributions to the Beneficiaries .43-.45
Financial Statement Presentation .46-.53
Statement of Financial Position .46
Statement of Activities .47
Disclosures .48-.53
Examples of Split-Interest Agreements .54-.87
Charitable Lead Trust .55-.60
Perpetual Trust Held by a Third Party .61-.65
Charitable Remainder Trust .66-.72
Charitable Gift Annuity .73-.77
Pooled (Life) Income Fund .78-.82
Life Interest in Real Estate .83-.87
Auditing .88-.93
Appendix A - Excerpt From AICPA White Paper Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities .94
Appendix B - Journal Entries .95
7 Other Assets .01-.48
Introduction .01
Inventory .02-.11
Acting as an Agent in a Sale of Commodities .11
Prepaid Expenses, Deferred Costs, and Similar Items .12-.16
Collections and Works of Art, Historical Treasures, or Similar Assets .17-.29
Financial Statement Presentation of Collections .26-.28
Illustrative Disclosures About Collections .29
Goodwill .30-.33
Intangible Assets Other Than Goodwill .34-.38
7 Other Assets - continued Auditing .39-.48
Inventory .40
Goodwill .41-.42
Collection Items .43-.48
8 Programmatic Investments .01-.71
Introduction .01-.07
Core Considerations for Accounting and Reporting .08
Loans 09-.52
Effective Interest Rate Approach . . 11-.17
Inherent Contribution Approach . . 18-.25
Loan Agreements That Contain Conditional Promises to Give .26-.28
Loans That Do Not Bear a Market Interest Rate but the NFP Expects to Collect All Required Payments .29-.33
Loans That Contain a Right to Profit From the Sale or Refinancing of Property .34
Forgiveness of Programmatic Loans .35-.37
Impairment of Programmatic Loans .38-.50
Disclosures About Programmatic Loans .51-.52
Equity Instruments .53-.61
Programmatic Equity Investments That Are Consolidated .55
Programmatic Equity Investments Reported Using the Equity Method .56-.58
Programmatic Equity Investments Reported Using Fair Value .59
Programmatic Equity Investments Reported Using the Measurement Alternative .60
Disclosures About Programmatic Equity Instruments .61
Guarantees .62
Concentrations of Risk .63
Presentation of Programmatic Investments .64-.69
Contributed Resources for Making Programmatic Investments .64-.66
Agency Resources for Making Programmatic Investments .67-.69
Program-Related Investments of Private Foundations .70
Auditing .71
9 Property and Equipment .01-.44
Introduction .01-.02
Recognition and Measurement Principles .03-.29
Contributed Property and Equipment .04-.06
Use of Property and Equipment Owned by Others .07-.09
9 Property and Equipment - continued Capitalized Interest .10-.15
Depreciation and Amortization .16-.19
Expiration of Restrictions on Property and Equipment .20
Impairment or Disposal of Long-Lived Assets .21-.25
Asset Retirement Obligations .26-.28
Gains and Losses .29
Financial Statement Presentation .30-.35
Auditing .36-.44
Property and Equipment Additions .38-.41
Account Balances .42-.44
10 Debt and Other Liabilities .01-.118
Introduction .01
Fair Value Measurement .02-.08
Municipal Bond Financing and Other Long-Term Debt .09-.87
Joint and Several Liability Arrangements .14-.17
Bonds That Trade in Public Markets .18-.20
Credit Enhancement .21-.23
Issuance of Municipal Bonds .24-.25
Extinguishment and Modification Transactions .26-.53
IRS Considerations .54-.58
Financial Statement Presentation and Disclosure .59-.86
Annual Filing Requirements .87
Tax Liabilities .88
Contract Liabilities .89
Refunds Due to and Advances From Third Parties .90
Promises to Give .91-.95
Split-Interest Obligations .96
Amounts Held for Others Under Agency Transactions .97
Revenue Sharing and Other Agreements .98
Exit or Disposal Activities .99
Guarantees .100-.101
Contingencies .102
Pension and Other Defined Benefit Postretirement Plan Obligations .103-.111
Single-Employer Plans .103-.106
Multiemployer Plans .107-.111
Auditing .112-.116
General .112-.114
Debt .115-.116
Appendix A - Municipal Securities Regulation .117
Appendix B - Auditor Involvement With Municipal Securities Filings .118
11 Net Assets and Reclassifications of Net Assets .01-.58
Introduction .01-.02
Fiduciary Responsibilities to Meet Donor Restrictions .03-.08
Failure to Meet a Donor’s Restriction .08
Net Asset Classes .09-.11
Net Assets With Donor Restrictions .12-.22
Net Assets Without Donor Restrictions .16-.22
Noncontrolling Interests .23-.25
Reclassifications of Net Assets .26
Expiration of Donor-Imposed Restrictions .27-.47
Using Donor-Restricted Contributions First .31-.34
Expiration of Donor Restrictions on Promises to Give .35-.40
Expiration of Restrictions on Gifts of Long-Lived Assets or Gifts for Their Purchase .41-.44
Expiration of Restrictions on Donor-Restricted Endowment Funds .45-.46
Restrictions That Are Met in the Same Year as the Contribution Was Received .47
Disclosures .48-.54
Changing Net Asset Classifications Reported in a Prior Year .55
Auditing .56-.58
12 Revenues and Receivables From Exchange Transactions .01-.33
Introduction .01-.02
Difference Between Revenues and Gains .03-.04
Recognition, Measurement, and Display of Revenue .05-.22
Tuition and Fees .11-.17
Membership Dues .18-.21
Subscriptions .22
Receivables From Exchange Transactions .23-.25
Auditing .26-.32
Appendix A - Implementation Guidance for Tuition and Fees, Membership Dues, and Subscriptions in Accordance With FASB ASC 606, Revenue from Contracts with Customers .33
13 Expenses, Gains, and Losses .01-.142
Introduction .01
Expenses .02-.06
Expense Recognition Issues .07-.34
Fund-raising Costs .08-.14
Financial Aid and Other Reductions in Amounts Charged for Goods and Services .15
Advertising Costs .16-.18
Services Received From an Affiliate .19-.23
13 Expenses, Gains, and Losses - continued Start-Up Costs .24-.26
Internal Use Computer Software Costs .27
Contributions Made .28-.34
Gains and Losses .35-.50
Reporting Costs Related to Sales of Goods and Services .42-.44
Reporting the Cost of Special Events and Other Fund-raising Activities .45-.49
Investment Revenues, Expenses, Gains, and Losses .50
Functional Reporting of Expenses .51-.132
Program Services .53-.64
Supporting Services .65-.76
Classification of Expenses Related to More Than One Function .77-.126
Support to Related Local and National NFPs .127-.128
Distributions From Financially Interrelated Fund-raising Foundations to Specified Beneficiaries .129-.131
Expenses of Federated Fund-raising Entities .132
Income Taxes .133
Auditing .134-.138
Expense Recognition Issues . . 136
Gains and Losses .137
Functional Reporting of Expenses .138
Supplement A - Accounting for Joint Activities .139
Supplement B - Examples of Applying the Criteria of Purpose, Audience, and Content to Determine Whether a Program or Management and General Activity Has Been Conducted .140
Supplement C - Allocation Methods for Joint Costs .141
Supplement D - Examples of Disclosures .142
14 Reports of Independent Auditors .01-.30
Reports on Financial Statements .01-.02
Reports on Comparative Financial Statements and Presentation of Comparative Information .03-.08
Unmodified Opinions .09
Additional Communications in the Auditor’s Report and Modified Opinions .10
Going Concern .11
Reporting on Supplementary Information .12-.14
Special Considerations .15-.16
Reporting Under Other Technical Standards .17-.21
Reporting on Prescribed Forms .22-.25
Reports Required by Government Auditing Standards, the Single Audit Act Amendments of 1996, and the Uniform Guidance .26-.30
15 Tax and Regulatory Considerations .01-.75
Introduction .01-.03
Internal Revenue Service .04-.39
Basis of Exemption .04-.23
IRS Filing Requirements .24-.27
Investment Income .28
Unrelated Business Income .29-.32
Alternative Investments .33
Tax Shelters .34
Employment Taxes .35-.37
Private Foundations .38-.39
Income Tax Positions .40-.44
Deferred Tax Assets and Liabilities .45-.46
State and Local Regulations .47-.57
State Charitable Solicitation Laws .47-.50
State and Local Gaming Regulations .51
Uniform Prudent Management of Institutional Funds Act .52-.57
Securities Regulation .58-.61
Sarbanes Oxley and Governance Policies .62-.64
Executive Compensation .65-.68
Other Regulatory Activities .69-.71
U.S. Department of the Treasury Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.- Based Charities .69-.71
Auditing .72-.75
16 Fund Accounting .01-.23
Introduction .01
Fund Accounting and External Financial Reporting .02-.05
Unrestricted Current (or Unrestricted Operating or General) Funds .06-.07
Restricted Current (or Restricted Operating or Specific-Purpose) Funds .08-.09
Plant (or Land, Building, and Equipment) Funds .10-.14
Loan Funds .15-.16
Endowment Funds .17-.19
Annuity and Life-Income (Split-Interest) Funds .20-.21
Agency (Or Custodian) Funds .22
Summary .23
Appendix A FASB Accounting Standards Codification 958, Not-For-Profit Entities, Topic Hierarchy B The New Revenue Recognition Standard: FASB ASC 606
C The New Leases Standard: FASB ASC 842
D Information Sources
E New Auditing Standards to Change the Auditor’s Report
F Overview of Statements on Quality Control Standards
G Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
Subject Index
