Public Sector and NPO Flashcards
Determine if a organization is in the public sector
“‘Public sector’refers to governments, government components, government organizations and government partnerships. Each of these entities is a ‘public sector entity’.
Determine if the government organization is considered a government business enterprise
(a) It is a separate entity with the power to contract in its own name and that can sue and be sued
(b) It has been delegated the financial and operational authority to carry on a business
(c) It sells goods and services to individuals and organizations outside of the government reporting entity as its principal activity
(d) It can, in the normal course of its operations, maintain its operations and meet its liabilities from revenues received from sources outside of the government reporting entity.
appropriate financial reporting standard for government business enterprise
CPA Canada Handbook –Accounting for publicly accountable enterprises
Therefore they should follow IFRS
Two types of government grants
- grants related to income
* grants related to assets
Government Grants are recognized when
All grants are recognized when there is reasonable assurance of two criteria:
- The entity will comply with the conditions attached to the grant; and
- The grant will be received.
If grant recognition criteria is not met record as:
A liability (deferred government grant). The liability is reduced as the conditions are met (or as there is reasonable assurance that they will be met).
Grants Related to Income - recognition and presentation
The grant is recognized as the related expense is incurred.
A grant relating to income may be presented in one of two ways:
• separately as “other income”; or
• deducted from the related expense (a credit to the expense account)
Grants Related to Assets - recognition and presentation
The grant is recognized as income over the period necessary to match it with the related costs for which it is intended to compensate, usually in line with the depreciation policies of the asset.
A grant relating to assets may be presented in one of two ways:
• as deferred income (a liability), and brought into income over the life of the asset as depreciation is incurred
o In the case of a non-depreciable asset, the grant is likely to carry conditions with it. The grant would be recognized over the period in which those conditions are met.
• deducted from the asset’s carrying amount
NFP frameworks allowed
An NPO has the option to apply IFRS, ASPE, or ASNPO.
If follows ASNPO: must follow all standards and apply ASPE where a topic is not addressed
Names of statements for NPO
Statement of financial position
Statement of operations
Statement of cash flows
Statement of changes in net assets or fund balances: net excess or deficiency on statement of operations is closed to this account.
NPO Fund accounting
Results in segregated accounting information
for identified funds with self-balancing
accounts.
Funds established can be for legal,
contractual, or voluntary actions.
Each fund has its own set of revenues,
expenses, assets, liabilities, and net balance.
Common types: general, restricted, capital asset,
and endowment.
Fund accounting must be used when an NPO uses the restricted fund method of accounting for contributions.
The use of fund accounting is optional when an NPO uses the deferral method of accounting for contributions.
Advantage:
Provides valuable information to stakeholders if there is several different programs or different geographical areas.
Drawback:
Increases complexity of accounting
NPO types of contributions
- unrestricted contributions
- restricted contributions
- endowment contributions
NPO Deferral method
- Unrestricted contributions are recognized when received
- Restricted contributions are deferred and recognized as revenue in the period in which the related expenses are incurred (deferred contributions)
- Contributions of capital assets are deferred as a liability and recorded to revenue as amortization is recorded
- Contributions of non-depreciable capital assets are recorded as a direct increase in net assets (and are not recorded to revenue)
- Endowment contributions are recorded as a direct increase in net assets (and are not recorded to revenue)
NPO Restricted fund method
Fund accounting needs one or more restricted funds
Revenue is recognized in the period received or receivable in the appropriate restricted fund.
If a separate restricted fund is not disclosed, the NPO applies the deferral method of revenue recognition in the general fund.
Endowment contributions should be recognized as revenue of the endowment fund on the current period.
NPO Capital Asset treatment option - revenues under 500,000
NPOs with revenues under the $500,000 threshold may choose to do one of the following:
- Directly expense the costs of tangible capital assets.
- Capitalize and amortize the cost of tangible capital assets.
