This edition includes guidance on reporting donated servicesbetween affiliated NFPs, split-interest agreements, contributions and grants, functional expenses and joint costs. An appendix is provided with insights for early adopters of FASB AU No. 2016-14, it offers an overview of the standard and assists in determiniing whether to adopt the new requirement early. Other updates include:
FASB ASU NO. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities
FASB ASU No. 2014-15, Presentation of Financial Statements--Going Concern (Subtopic 205-40): Disclosure of Uncertainiities about an Entity's Ability to Continue as a Going Concern
SAS No. 132, The Auditor's Consolidation of an Entity's Ability to Continue as a Going Concern,
FASB ASU No 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
FASB ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force)
FASB No. 2015-03, Interest--Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
FASB ASU No. 2017-02, Not for Profit Entities--Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity
Table of Contents:
Table of Contents xvii
Chapter Paragraph
1 Introduction 01-27
Scope 01-12
Entities 01-06
Basis of Accounting 07-10
Level of Service 11-12
GAAP for NFPs 13-19
Fund Accounting and Net Asset Classes 20-25
Other Resources for Financial Reporting by NFPs 26-27
2 General Auditing Considerations 01-150
Overview 01-02
Purpose of an Audit of Financial Statements 03-08
Audit Risk 05-08
Terms of Engagement 09-11
Audit Planning Considerations 12-59
Group Audits 14-18
Using the Work of an Auditor’s Specialist 19-24
Materiality 25-33
Related-Party Transactions 34-37
Consideration of Errors and Fraud 38-41
Compliance With Laws and Regulations 42-56
Processing of Transactions by Service Organizations 57-59
Use of Assertions in Assessment of Risks of Material Misstatement 60-64
Risk Assessment Procedures 65-88
Risk Assessment Procedures and Related Activities 67-69
Analytical Procedures 70-72
Discussion Among the Audit Team 73
Understanding of the Entity and Its Environment, Including the Entity’s Internal Control 74-88
Using Risk Assessment to Design Further Audit Procedures 89-111
Identifying and Assessing the Risks of Material Misstatement 90-92
Risks That Require Special Audit Consideration 93-94
Designing and Performing Further Audit Procedures 95-110
Evaluating the Sufficiency and Appropriateness of Audit Evidence 111
Evaluation of Misstatements Identified During the Audit 112-114
Communication With Those Charged With Governance 115-121
Completing the Audit 122-149
Going-Concern Considerations 122-132
Written Representations 133-141
Audit Documentation 142-149
Appendix A—Consideration of Fraud in a Financial Statement Audit 150
3 Financial Statements, the Reporting Entity, and General Financial
Reporting Matters 01-193
Introduction 01-05
Statement of Financial Position 06-27
Effects of Restrictions, Designations, and Other Limitations on Liquidity 09-23
Classification of Net Assets 24-27
Statement of Activities 28-45
Reporting Expenses, Including in a Statement of Functional Expenses 40-45
Statement of Cash Flows 46-54
Comparative Financial Information 55-57
Reporting of Related Entities, Including Consolidation 58-121
Relationships With Another NFP 63-71
Relationships With a For-Profit Entity 72-99
Consolidation of a Special-Purpose Leasing Entity 100-101
Consolidated Financial Statements 102-119
Parent-Only and Subsidiary-Only Financial Statements 120
Combined Financial Statements 121
Mergers and Acquisitions 122-135
Merger of Not-for-Profit Entities 124-125
Acquisition by a Not-for-Profit Entity 126-135
Collaborative Arrangements 136-137
The Use of Fair Value Measures 138-171
Definition of Fair Value 141-147
Valuation Approaches and Techniques 148-154
The Fair Value Hierarchy 155-158
Additional Guidance for Fair Value Measurement in Special Circumstances 159-167
Disclosures 168
Fair Value Option 169-171
Financial Statement Disclosures Not Considered Elsewhere 172-184
Noncompliance With Donor-Imposed Restrictions 173-175
Risks and Uncertainties 176
Subsequent Events 177-180
Related Party Transactions 181-184
Auditing 185-192
Financial Statement Close Process 186-187
Operating and Nonoperating Classifications in the Statement of Activities 188
Consolidation 189
Liquidity 190
Mergers and Acquisitions 191
Noncompliance With Donor-Imposed Restrictions 192
Supplement A—Flowcharts 193
Table of Contents xix
4 Cash, Cash Equivalents, and Investments 01-117
Cash and Cash Equivalents 01-04
Investments Discussed in This Chapter 05-10
Initial Recognition and Measurement of Investments 11-12
Valuation of Investments Subsequent to Acquisition 13-43
Equity Securities With Readily Determinable Fair Value (Other Than Consolidated Subsidiaries and Equity Securities Reported Under the Equity Method) and All Debt Securities 17
Investments That Are Accounted for Under the Equity Method or a Fair Value Election 18-27
Derivative Instruments 28-36
Other Investments 37
Decline in Fair Value After the Date of the Financial Statements 38
Fair Value Measurements 39-43
Investment Income and Expenses 44-52
Unrealized and Realized Gains and Losses 53-55
Investments Held as an Agent 56
Investment Pools 57-63
Self-Managed Investment Pools 57
Investment Pools Managed by a Financially Interrelated Entity 58
Investment Pools Managed by Third Parties 59-63
Endowment Funds 64-78
Financial Statement Presentation 79-88
Cash and Cash Equivalents 79-82
Investments 83-88
Disclosures 89-101
Auditing 102-117
Endowment Funds 107
Investment Pools 108-113
Audit Objectives and Procedures 114-116
Appendix A—Determining Fair Value of Alternative Investments 117
5 Contributions Received and Agency Transactions 01-242
Introduction 01-04
Distinguishing Contributions From Other Transactions 05-57
Agency Transactions 07-22
Variance Power 23-27
Financially Interrelated Entities 28-32
Similar Transactions That Are Revocable, Repayable, or Reciprocal 33-38
Exchange Transactions 39-57
Core Recognition and Measurement Principles for Contributions 58-88
Recognition Principles 59-66
Measurement Principles 67-70
Recognition If a Donor Imposes a Condition 71-74
Recognition If a Donor Imposes a Restriction 75-88
Additional Accounting Considerations for Certain Contributions 89-179
Promises to Give 89-111
Contributed Services 112-117
Special Events 118-122
Gifts in Kind 123-149
Contributed Items to Be Sold at Fund-raising Events 150-151
Contributed Fund-raising Material, Informational Material, or Advertising, Including Media Time or Space 152-163
Contributed Utilities and Use of Long-Lived Assets 164-166
Guarantees 167-171
Below-Market Interest Rate Loans 172-174
Contributed Collection Items 175
Split-Interest Agreements 176
Administrative Costs of Restricted Contributions 177-179
Measurement Principles for Contributions Receivable 180-212
Present Value Techniques 183-186
Organization of the Measurement Guidance 187
Initial Measurement 188-196
Subsequent Measurement 197-212
Financial Statement Presentation 213-215
Disclosures 216-222
Illustrative Disclosures 222
Auditing 223-240
Contributions Receivable 237-239
Agency Transactions 240
Appendix A—Excerpt From AICPA Financial Reporting White Paper Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities 241
Appendix B—Technical Questions and Answers About Financially Interrelated Entities 242
6 Split-Interest Agreements and Beneficial Interests in Trusts 01-96
Introduction 01
Types of Split-Interest Agreements 02-03
Recognition and Measurement Principles 04-45
Use of Fair Value Measures 05-06
Recognition of Revocable Agreements 07
Recognition of Irrevocable Agreements 08-12
Initial Recognition and Measurement of Unconditional Irrevocable Agreements Other Than Pooled Income Funds or Net Income Unitrusts 13-27
Initial Recognition and Measurement of Pooled Income Funds and Net Income Unitrusts 28
Recognition and Measurement During the Agreement’s Term for Unconditional Irrevocable Agreements Other Than Pooled Income Funds or Net Income Unitrusts 29-40
Recognition and Measurement During the Agreement’s Term for Pooled Income Funds and Net Income Unitrusts 41
Recognition Upon Termination of Agreement 42
Purchase of Annuity Contracts to Make Distributions to the Beneficiaries 43-45
Financial Statement Presentation 46-53
Statement of Financial Position 46
Statement of Activities 47
Disclosures 48-53
Examples of Split-Interest Agreements 54-88
Charitable Lead Trust 55-61
Perpetual Trust Held by a Third Party 62-66
Charitable Remainder Trust 67-73
Charitable Gift Annuity 74-78
Pooled (Life) Income Fund 79-83
Life Interest in Real Estate 84-88
Auditing 89-94
Appendix A—Excerpt From AICPA White Paper Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities 95
Appendix B—Journal Entries 96
7 Other Assets 01-45
Introduction 01
Inventory 02-10
Acting as an Agent in a Sale of Commodities 10
Prepaid Expenses, Deferred Costs, and Similar Items 11-15
Collections and Works of Art, Historical Treasures, or Similar Assets 16-28
Financial Statement Presentation of Collections 25-27
Illustrative Disclosures About Collections 28
Goodwill 29-31
Intangible Assets Other Than Goodwill 32-35
Auditing 36-45
Inventory 37
Goodwill 38-39
Collection Items 40-45
8 Programmatic Investments 01-71
Introduction 01-07
Core Considerations for Accounting and Reporting 08
Loans 09-52
Effective Interest Rate Approach 11-17
Inherent Contribution Approach 18-33
Loans That Contain a Right to Profit From the Sale or Refinancing of Property 34
Forgiveness of Programmatic Loans 35-37
Impairment of Programmatic Loans 38-50
Disclosures About Programmatic Loans 51-52
Equity Instruments 53-61
Programmatic Equity Investments That Are Consolidated 55
Programmatic Equity Investments Reported Using the Equity Method 56-58
Programmatic Equity Investments Reported Using Fair Value 59
Programmatic Equity Investments Reported Using a Cost Method 60
Disclosures About Programmatic Equity Instruments 61
Guarantees 62
Concentrations of Risk 63
Presentation of Programmatic Investments 64-69
Contributed Resources for Making Programmatic Investments 64-66
Agency Resources for Making Programmatic Investments 67-69
Program-Related Investments of Private Foundations 70
Auditing 71
9 Property and Equipment 01-49
Introduction 01-02
Recognition and Measurement Principles 03-33
Contributed Property and Equipment 04-07
Use of Property and Equipment Owned by Others 08-13
Capitalized Interest 14-19
Depreciation and Amortization 20-23
Expiration of Restrictions on Property and Equipment 24
Impairment or Disposal of Long-Lived Assets 25-29
Asset Retirement Obligations 30-32
Gains and Losses 33
Financial Statement Presentation 34-40
Auditing 41-49
Property and Equipment Additions 43-46
Account Balances 47-49
10 Debt and Other Liabilities 01-117
Introduction 01
Fair Value Measurement 02-08
Municipal Bond Financing and Other Long-Term Debt 09-87
Joint and Several Liability Arrangements 14-17
Conduit Bonds That Trade in Public Markets 18-20
Credit Enhancement 21-23
Issuance of Municipal Bonds 24-25
Extinguishment and Modification Transactions 26-53
IRS Considerations 54-58
Financial Statement Presentation and Disclosure 59-86
Annual Filing Requirements 87
Tax Liabilities 88
Deferred Revenue 89
Refunds Due to and Advances From Third Parties 90
Promises to Give 91-95
Split-Interest Obligations 96
Amounts Held for Others Under Agency Transactions 97
Revenue Sharing and Other Agreements 98
Exit or Disposal Activities 99
Guarantees 100-101
Contingencies 102
Pension and Other Defined Benefit Postretirement Plan Obligations 103-110
Single-Employer Plans 103-105
Multiemployer Plans 106-110
Auditing 111-115
General 111-113
Debt 114-115
Appendix A—Municipal Securities Regulation 116
Appendix B—Auditor Involvement With Municipal Securities Filings 117
11 Net Assets and Reclassifications of Net Assets 01-63
Introduction 01-02
Fiduciary Responsibilities to Meet Donor Restrictions 03-08
Failure to Meet a Donor’s Restriction 08
Net Asset Classes 09-25
Permanently Restricted Net Assets 12-14
Temporarily Restricted Net Assets 15-17
Unrestricted Net Assets 18-25
Noncontrolling Interests 26-28
Reclassifications 29
Expiration of Donor-imposed Restrictions 30-52
Using Restricted Contributions First 33-36
Expiration of Restrictions on Promises to Give 37-45
Expiration of Restrictions on Gifts of Long-Lived Assets or Gifts for Their Purchase 46-49
Expiration of Restrictions on Donor Restricted Endowment Funds 50-51
Restrictions That Are Met in the Same Year as the Contribution Was Received 52
Disclosures 53-59
Changing Net Asset Classifications Reported in a Prior Year 60
Auditing 61-63
12 Revenues and Receivables From Exchange Transactions 01-24
Introduction 01-02
Difference Between Revenues and Gains 03-05
Recognition, Measurement, and Display of Revenue 06-14
Discounts 12
Membership Dues 13-14
Receivables From Exchange Transactions 15-17
Auditing 18-24
13 Expenses, Gains, and Losses 01-134
Introduction 01
Expenses 02-06
Expense Recognition Issues 07-34
Fund-raising Costs 08-14
Financial Aid and Other Reductions in Amounts Charged for Goods and Services 15
Advertising Costs 16-18
Services Received From an Affiliate 19-23
Start-Up Costs 24-26
Internal Use Computer Software Costs 27
Contributions Made 28-34
Gains and Losses 35-50
Reporting Costs Related to Sales of Goods and Services 42-44
Reporting the Cost of Special Events and Other Fund-raising Activities 45-49
Investment Revenues, Expenses, Gains, and Losses 50
Functional Reporting of Expenses 51-124
Program Services 53-64
Supporting Services 65-70
Classification of Expenses Related to More Than One Function 71-118
Support to Related Local and National NFPs 119-120
Distributions From Financially Interrelated Fund-raising Foundations to Specified Beneficiaries 121-123
Expenses of Federated Fund-raising Entities 124
Income Taxes 125
Auditing 126-130
Expense Recognition Issues 128
Gains and Losses 129
Functional Reporting of Expenses 130
Supplement A—Accounting for Joint Activities 131
Supplement B—Examples of Applying the Criteria of
Purpose, Audience, and Content to Determine Whether a Program or Management and General Activity Has Been Conducted 132
Supplement C—Allocation Methods 133
Supplement D—Examples of Disclosures 134
14 Reports of Independent Auditors 01-30
Reports on Financial Statements 01-02
Reports on Comparative Financial Statements and Presentation of Comparative Information 03-08
Unmodified Opinions 09
Modified Reports and Departures From Unmodified Opinions 10
Going Concern 11
Reporting on Supplementary Information 12-14
Special Considerations 15-16
Reporting Under Other Technical Standards 17-21
Reporting on Prescribed Forms 22-25
Reports Required by Government Auditing Standards, the Single Audit Act Amendments of 1996, and the Uniform Guidance 26-30
15 Tax and Regulatory Considerations 01-74
Introduction 01-03
Internal Revenue Service 04-38
Basis of Exemption 04-23
IRS Filing Requirements 24-27
Unrelated Business Income 28-31
Alternative Investments 32
Tax Shelters 33
Employment Taxes 34-36
Private Foundations 37-38
Income Tax Positions 39-43
Deferred Tax Assets and Liabilities 44-45
State and Local Regulations 46-56
State Charitable Solicitation Laws 46-49
State and Local Gaming Regulations 50
Uniform Prudent Management of Institutional Funds Act 51-56
Securities Regulation 57-60
Sarbanes Oxley and Governance Policies 61-63
Executive Compensation 64-67
Other Regulatory Activities 68-70
US Department of the Treasury Anti-Terrorist Financing
Guidelines: Voluntary Best Practices for US-Based
Charities 68-70
Auditing 71-74
16 Fund Accounting 01-25
Introduction 01
Fund Accounting and External Financial Reporting 02-05
Unrestricted Current (or Unrestricted Operating or General) Funds 06-07
Restricted Current (or Restricted Operating or Specific-Purpose) Funds 08-09
Plant (or Land, Building, and Equipment) Funds 10-15
Loan Funds 16-17
Endowment Funds 18-21
Annuity and Life-Income (Split-Interest) Funds 22-23
Agency (Or Custodian) Funds 24
Summary 25
Appendix
A The New Not-for-Profit Financial Reporting Model Standards: FASB ASU No 2016-14
B The New Revenue Recognition Standard: FASB ASU No 2014-09
C FASB Accounting Standards Codification 958, Not-For-Profit Entities, Topic Hierarchy
D Information Sources
E Overview of Statements on Quality Control Standards
F Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
About the Author :
Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups, and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accountingprofession's technical and ethical standards.
The AICPA's founding estabiished accountancy as a profession distinguished by rigorous educational requirements, high professional, standards, a strict code of professional ethics, a licensing status and commitment to serving the public interest.
