Not-for-Profit Accounting & Reporting 1 - Entity Types/Financial Reporting/Special Issues Flashcards
What are the 4 types of Not-for-Profit entities?
1) Voluntary health and welfare organizations (VHWO)
2) Other not-for-profit organizations (NPO)
3) Healthcare
4) Colleges & Universities
What is the most highly tested area of Not-for-profits on the CPA exam?
Revenue recognition and types of net assets
What is a Voluntary health and welfare organizations (VHWO)?
A broad based organization that provides free or low-cost services w/ financial support derived from voluntary contributions and grants
Resource providers are not primary recipients of services
What are other NPOs?
Essentially NPO that benefit their members
Resource providers can be primary recipients of services
What is the standard setting body from NPOs?
The FASB, for all non-governmental hospitals, colleges & universities
Governmental hospitals, colleges & universities follow GASB standards
What is the purpose to NPO Financial Reporting?
1) Stewardship & Performance: how managers fulfill their stewardship responsibilities & other aspects of their performance
2) Services & Sustainability: services provided & the ability of organization to continue to provide those services
What are the 3 types of Net Asset categories based on type of restrictions for NPOs?
1) Unrestriced
2) Temporarily Restricted
3) Permanently Restricted
What type of reporting is used internally for NPOs vs Externally?
Internally = funds based Externally = entities based
What financial statements are required of VHWOs and other NPOs
1) Statement of Financial Position (ie B/S) required for both
2) Statement of Activities (ie I/S) required for both
3) Statement of Cash Flows: required for both
4) Statement of Functional Expenses: required for VHWO, optional for ONPO
What is the main difference on the Balance Sheet for an NPO vs a for profit entity?
The equity section, ie Net Assets are broken into 3 parts
Unrestricted
Temporarily Restricted
Permanently Restricted
How are revenues and expenses generally reported in the Statement of Activities for an NPO?
Revenues & gains are reported by source in each net asset category (ie. unrestricted, temp restricted, perm restricted).
Expenses are ONLY reported in Unrestricted Net Assets
& are reported by function
& classified as either:
- Program services
or - Supporting Services
Changes in classes of net assets are reported separately!
More specifically, how are revenues reported on the Statement of Activities?
Reported at gross
Revenues are the result of ongoing major or central activities
Revenues reported in appropriate net asset category
1) Unrestricted
2) Temporarily Restricted
3) Permanently Restricted
More specifically, how are expenses reported on the Statement of Activities?
ONLY reported in the Unrestricted Net Asset category
2 sub categories
- Program Services: expenses related to the primary mission of the organization
- Supporting Services: Expenses do not directly relate to the primary mission (eg. management, general, administration, fundraising)
How are gains or losses reported on the Statement of Activities?
May be reported at net or gross
Result from transactions that are considered peripheral or incidental to organizations, ie not related to main mission of NPO
Reported in appropriate net asset category
What does the Statement of Functional Expenses provide? and for whom is it required
Required for VHWO, optional for ONPOs
Provides detail to expenses section of the Statement of Activities for each program and support service by functional classification and by object class
How are fund-raising expenses classified?
As supporting services expenses
What are the different types of endowments that might be received by a NPO?
1) Regular aka “Pure” Endowment
2) Other Endowment
a) Quasi
b) Term
c) Board Designated
What defines a Regular Endowment?
An external party donates with stipulations that it must remain intact forever
ie. a permanently restricted net asset
Endowment earnings may be:
- Restricted: temporarily restricted net assets
- No Restriction: unrestricted net assets
What is a “term” endowment?
The principal donated by an external part to be invested and then can be spent after passage of time
Classified as a temporarily restricted net assets
What is a “quasi” endowment?
The principal is set aside by the governing body Rather than an external party. ie INTERNALLY created
Classified as an Unrestricted net asset
What is a “board designated” endowment?
Governing body sets aside funds to spend for a SPECIFIC PURPOSE
Accounted for as Unrestricted net asset
May be shown as a “RESERVE” in the unrestricted net asset category
If “endowment” comes from within, ie from the board, how is it qualified?
Always unrestricted
Only restricted or temporarily restricted if it comes from an external party
What are “Split Interest Agreements”
where an NPO shares benefits in a trust with the donor or other third party beneficiary
Characteristics:
- Revocable or irrevocable
- Time Period
- Distributions
- Lead Interest: NPO receives distribution during term of agreement OR remainder interest
What is the accounting if the “Split Interest Agreement” is Irrevocable?
Record asset @ FV
Liability for annuity portion due to donor or 3rd party
Contribution revenue for NPOs portion
What is the accounting if the “Split Interest Agreement” is revocable?
Similar to a pledge
Record assets @ FV and a refundable advance
Contribution revenue is recognized when the trust becomes irrevocable or funds are distributed to the NPO @ end of agreement
How are investments accounted for NPOs?
Account for all investments at FV (like for profit)
Gains and losses are reported as changes to unrestricted net assets unless there is a donor imposed restriction
UNLIKE FOR PROFIT
Do not have the different classifications of: Held-to-maturity, Trading, & AFS
What are the types of funds used by VHWOs?
1) Unrestricted Current Fund
2) Restricted Current Fund
3) Custodian Fund
4) Endowment Fund
5) Loan & Annuity Fund eg. split interest agreement
6) Land, Building & Equipment funds
