FAR SEC 20 Flashcards
What are NFPs?
nongovernmental not-for-profit entities (NFPs)
What are three characteristics of NFPs?
1) Contributors of significant resources to the NFP do not expect a proportionate return.
2) The NFP has operating purposes other than providing goods or services for profit.
3) The NFP has no ownership interests similar to those of a business entity.
What are 8 examples of NFPs?
Among the many kinds of NFPs are
(1) educational institutions,
(2) healthcare entities,
(3) cultural organizations,
(4) voluntary health and welfare entities,
(5) federated fundraising organizations,
(6) unions,
(7) political parties, and
(8) public broadcasting stations.
Which three characteristics differentiate NFPs from businesses?
1) NFPs receive significant resources from providers who do not expect to receive repayment or proportionate economic benefits (nonreciprocal transactions).
-They have transactions that are infrequent in businesses, such as grants and contributions, and no transactions with owners, such as dividend payments.
2) NFPs have operating purposes other than to provide goods or services at a profit.
3) NFPs lack defined ownership interests that (a) can be sold, transferred, or redeemed or (b) entitle an owner to distributions upon liquidation of the entity.
What are four similarities between the operating environments of private businesses and NFPs?
1) Obtain resources in exchange transactions in markets.
2) Pay for labor, materials, and facilities now or promise to pay in the future.
3) Borrow funds using direct loans or issuing debt and securities.
4) Should provide information to creditors about risks and returns of securities.
How should financial reporting be done for NFPs? (3 elements)
1) Financial reporting should provide information useful to resource providers (e.g., the members, donors, and guarantors of NFPs) in making resource allocation decisions.
2) Whether resources are given for economic or non-economic reasons, all providers seek information about economic resources, obligations, net resources, and changes in them to assess future net cash flows.
3) All providers also focus on indicators of performance and management stewardship. For example, donors want to know whether managers (a) comply with restrictions and (b) act consistently with the entity’s objectives.
What do users of information about NFPs want to know?
Users of information about an NFP are interested in how effectively and efficiently it performs services.
Which three aspects of NFP performance to NFP information users evaluate?
Users of information about an NFP are interested in how effectively and efficiently it performs services. This information, e.g., about service efforts relevant to the mission, helps to evaluate
1) The NFP’s ability to continue performing those services,
2) How well objectives are met, and
3) Whether to continue support.
What is the primary purpose of the financial statements of NFPs?
The primary purpose of financial statements of an NFP is to provide relevant information serving the common interest of donors, creditors, and other external resource providers.
NFP financial reporting information should help assess the following three aspects of the NFP:
This information should help to assess the NFP’s
(a) services,
(b) ability to continue providing those services, and
(c) stewardship and other aspects of performance.
Which NFP financial/economic variables or events should be provided in NFP financial reporting? (5 elements)
1) Assets, liabilities, and net assets;
2) Changes in net assets;
3) Flows of economic resources;
4) Cash flows, borrowing and repayment of borrowing, and other factors affecting liquidity; and
5) Service efforts.
What financial reporting model is used for NFPs?
Reporting is based on a net assets model.
What are the three attributes of the net assets model for NFPs?
1) Net assets equals the excess or deficiency of assets over liabilities. Net assets is classified as
2) With donor restrictions or
3) Without donor restrictions.
How does an NFP Statement of Financial Position compare to the statements for a for-profit business?
A statement of financial position is equivalent to a for-profit entity’s balance sheet.
Which elements are included in the NFP Statement of Financial Position? Which elements are not included?
1) The elements are assets, liabilities, and net assets. The statement presents information about the elements and their relationships at a moment in time.
2) The elements investments by owners and distributions to owners are not included.
How does the NFP Statement of Activities compare to the financial statements for for-profit enterprises?
A statement of activities is an operating statement equivalent to a for-profit entity’s income statement.
What are the elements of an NFP Statement of Activities? (4 elements)
Its elements are revenues, expenses, gains, and losses.
What item is not an element of the NFP’s Statement of Activities?
Comprehensive income is not an element of an NFP’s statement of activities.
What three things does the NFP Statement of Activities provide information about?
The statement provides information about
1) The effects of transactions and other events and circumstances that change the amount and nature of net assets.
2) The relationships among those transactions, etc.
3) How resources are used to provide programs and services.
How does the NFP Statement of Cash Flows compare to the financial statements for private enterprises?
A statement of cash flows is similar to the statement reported by for-profit entities.
Is fund terminology used for NFPs?
Fund terminology is not used because the emphasis is on net assets and changes in net assets taken as a whole.
For NFPs, is reporting by fund groups required? Why or why not?
Fund terminology is not used because the emphasis is on net assets and changes in net assets taken as a whole. Reporting by fund groups therefore is not required for external reporting.
For NFPs, is disaggregating information by fund groups allowed?
Disaggregating information by fund groups is allowed but NOT REQUIRED for external reporting.
For NFPs, is the presentation of comparative statements required?
No. Presentation of comparative statements is encouraged but not required.