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

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

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

SFAS Number 116 Miscellaneous Services 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 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

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

SFAS Number 117 Statement of Activities (Page 289) Revenues-Gain-Expenses-Losses Revenues-Gain-Expenses-Losses Change in organization’s net assets 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.

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

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

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)

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

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 From Unrestricted resources As unrestricted and depreciated, or Temporarily restricted and reclassified according to Depreciation schedule From Restricted resources From Restricted resources Initially as unrestricted, then reclassify immediately to temporarily restricted, or Temporarily restricted and reclassified according to Depreciation schedule

NPO Accounting Quirks, Continued Multi-year pledges Recorded in year of pledge as temporarily restricted at the present value of future cash flows 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 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 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

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 SupportedNon-Govt Supported (most)

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

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

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 Program Services Supporting Services Supporting Services If expenses are allocable between program services and supporting services and are primarily for supporting, all are reported as supporting services

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