Non-Government NPOs

1. Non-Government NPOs • Follows Non-governmental Hierarchy shown on pp 4-5 • But FASB did very little to develop financial accounting standards for Non-governmental NPOs until recently • AICPA developed early NPO standards through Audit Guides Present and Potential Donors are primary users of financial statements

2. SFAS Number 93-Depreciation (1987) • Required that all NPO’s under FASB jurisdiction record depreciation annually in the accounts on long-lived assets. • So, a private college or university must record depreciation, but at the time of SFAS #93, a governmentally owned college or university did not have to. Distorted comparability function. • GASB #35 changed this for governmentally owned colleges and universities

3. SFAS Number 116 (1993) • Contributions Received • Unconditional- FMV when received • Conditional-FMV when conditions are met • Matching Gift • Contributions Made: Expense when made or conditions met. • Categories • Permanently Restricted • Temporarily Restricted • Unrestricted

4. SFAS Number 116 • Miscellaneous • Services • Whenever the service (1) creates or enhances non-financial assets or (2) requires specialized skills, is provided by someone possessing those skills, and typically would be purchased if not provided free • Works of art, etc • May or may not be recorded • If not recorded, extensive notes to financial statements used for disclosure • If sold, proceeds must be used to acquire other collections for viewing by the public

5. SFAS Number 117 • Requires NPO Financial Statements • Statement of Financial Position • Statement of Activities • Statement of Cash Flows • Statement of Functional Expenses for VHWOs • Statement of Financial Position • Assets • Liabilities • Net Assets • Permantly restricted, temporarily restricted, unrestricted (Page 290)

6. SFAS Number 117 • Statement of Activities (Page 289) • Revenues-Gain-Expenses-Losses • Change in organization’s net assets • Permanently restricted • Temporarily restricted • Unrestricted • Statement of Cash Flows (Page 291) • Cash & Cash Equivalent • 3 categories similar to business.

7. SFAS Number 124 • This statement requires that investments in equity securities with readily determinable fair values and all investments in debt securities be reported at fair value with gains and losses included in a statement of activities. • Originally SFAS #115 specifically excluded NPO’s & Govt. entities. • So 124 Requires N-G NPO’s use same investment valuation as FP’s

8. SFAS 133 • Derivatives – Rights to ownership at later dates (In the futures family) • Example: The right to sell 100 shares of IBM on November 1, 2005 and a commitment to buy today when price is $40.00 per share • Requires derivative agreements to be recorded as assets and liabilities at FMV on S of FP; Unrealized gains and losses on S of A

9. SFAS 136 • How to handle transfers to NPOs that hold for other organizations or individuals • Recorded as a liability if donor organization has no control (Cannot re-direct the funds) • Recorded as a revenue (contribution) if donor organization has control (alternative use)

10. NPO Accounting Quirks • Funds restricted as to time are recorded as assets in year of receipt or unconditional pledge, whichever is earlier, and temporarily restricted revenue • Then, released from restriction in the time period stated by the contributor • Funds restricted as to purpose (other than plant) are released whenever the expenditures are made for the purpose • Restricted funds are assumed to be used first • Expenses are only from unrestricted assets

11. NPO Accounting Quirks, Continued • Property, plant, and equipment is recorded at cost and depreciated similar to business • Acquisition of PP & E may be handled • From Unrestricted resources • As unrestricted and depreciated, or • Temporarily restricted and reclassified according to Depreciation schedule • From Restricted resources • Initially as unrestricted, then reclassify immediately to temporarily restricted, or • Temporarily restricted and reclassified according to Depreciation schedule

12. NPO Accounting Quirks, Continued • Multi-year pledges • Recorded in year of pledge as temporarily restricted at the present value of future cash flows • When cash is received, that amount is reclassified as unrestricted • As time passes, the increase in PV of future receipts is recorded as additional contributions, not interest revenue • Investments in equity securities with determinable FMV recorded at FMV

13. Voluntary Health & Welfare Organizations (VHWO’s) • YMCA • United Way • American Heart Association (Most are non-govt; but some may receive some govt support) • Accounting Authority GASB FASB Govt Supported Non-Govt Supported (most)

14. VHWO’s Continued • SFAS #116 Impact • Major-Since contributions are major source of revenue. • SFAS #117 Impact • Also major-since most VHWOs prepared financial statements on a disaggregated (layered) basis.

15. VHWO’s Continued • Sources of Accounting Authority • AICPA Audit Guide, Audits of VHWOs (1974) • SFAS #116 • SFAS #117 • SFAS #124 • SFAS #133 • SFAS #136

16. Financial Statements • Statement of Financial Position (Net Assets as to restriction category) • Statement of Activities • Statement of Cash Flows • Statement of Functional Expenses • Program Services • Supporting Services • If expenses are allocable between program services and supporting services and are primarily for supporting, all are reported as supporting services

17. VHWO Accounting Notes of Importance • Revenue • Accrual Basis • Revenues and public support items may be recognized in any fund except custodian funds • Pledges (gross) • Government agencies-normally restricted • Expenses • Program- directly related to mission • Supporting- administration, clerical, etc