Kế toán, kiểm toán - Chapter 10: Accounting for not - For - profit organizations

Essentials of Accounting for Governmental and Not-for-Profit OrganizationsChapter 10 Accounting for Not-For-Profit OrganizationsMcGraw-Hill/IrwinCopyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 10 – Learning ObjectivesDescribe characteristics of private not-for-profit organizations and the accounting for contributionsApply the accrual basis of accounting in the recording of typical transactions of a private not-for-profit organizationPrepare the financial statements for a private not-for-profit organizationStandard Setting AuthorityGASB Authority over government related not-for-profitsNot-for-profits owned or controlled by a governmental entity should follow applicable GASB standardsMost commonly, these follow enterprise fund accountingFASBPrivate not-for-profitsAICPA audit guides also applicableMajor SFASs 93, 116, 117, 124, 136, 164Private Not-For-ProfitsFASBs 116 & 117 were written in order to bring comparability between the financial reports of Private Colleges, Hospitals, Voluntary Health and Welfare Organizations and Other Not-for-Profits.However, because of unique features of the college and hospital settings, these entities are covered in greater detail in separate chapters.VHWOs and Other Not-for-ProfitsThe remainder of this chapter focuses on Voluntary Health and Welfare Organizations and Other Not-for-Profits.What are the characteristics of a VHWO? Promotes general health and well-being of the public.Tends to operate mainly from grants and gifts.Examples: United Way, American Cancer Society, Girl Scouts, YMCA.Understanding the Basic Financial StatementsThe three required statements are:Statement of Financial Position Statement of Activities Statement of Cash Flows Voluntary Health and Welfare Organizations must also prepare a Statement of Functional Expenses This statement is recommended but not required for other not-for-profits.Basis of Accounting and Use of FundsAccrual Basis: The accrual basis is required. This includes calculation and recording of depreciation expense. The financial statements report expenses, not expenditures or encumbrances.Funds: Many Private Not-for-profit organizations use fund designations internally for bookkeeping purposes, but the financial statements are on an overall basis and do not make reference to funds except in the notes or supplemental schedulesStatement of Financial Position Assets and liabilities are not required to be classified as current and non-current, but may be. Long-term assets and debt are reported.Net Assets (equities) are classified as:UnrestrictedTemporarily restricted - time or purpose restrictionsPermanently restricted Park County Animal Shelter  Statement of Financial Position  As of 12-31-2015   Assets     Cash  $ 110,700   Pledges receivable 30,000   Interest receivable 500   Supplies Inventory 12,500   Endowment Investments 250,000    Total Assets $ 403,700        Liabilities   Accounts payable 3,000   Wages payable 2,700    Total Liabilities 5,700   Net assets   Unrestricted 93,000   Temporarily restricted 55,000   Permanently restricted (endowment) 250,000    Total Net Assets 398,000    Total Liabilities and Net Assets $ 403,700       Accounting rules require contributions to be recorded when promised. Do not wait until collected. Park County Animal Shelter  Statement of Financial Position  As of 12-31-2015   Assets     Cash  $ 110,700   Pledges receivable 30,000   Interest receivable 500   Supplies Inventory 12,500   Endowment Investments 250,000    Total Assets $ 403,700        Liabilities   Accounts payable 3,000   Wages payable 2,700    Total Liabilities 5,700   Net assets   Unrestricted 93,000   Temporarily restricted 55,000   Permanently restricted (endowment) 250,000    Total Net Assets 398,000    Total Liabilities and Net Assets $ 403,700       Restrictions are reflected in the Equity Section: called Net Assets Statement of Activities The statement must distinguish changes in net assets that are permanently restricted, temporarily restricted, and unrestricted. Restrictions must be outside donor-imposedCan use three separate statements, columns or other formatsRevenue vs support:Support: is a class of revenues limited to gifts such as contributionsExchange transaction, such as sales of service, are labeled “revenues”Statement of Activities ExpensesAll expenses are reported in the unrestricted columnClassify expenses as program or supporting services. RestrictionsTemporarily restricted resources must be ‘released’ or moved from the temporary column to the unrestricted column as restrictions are satisfied. Park County Animal Shelter, Inc.Statement of ActivitiesFor the year ended 12-31-2015Revenues  Unrestricted Temporarily Restricted Permanently Restricted Total Contributions   $ 146,000 $ 50,000 $ 15,000 $ 211,000 Grants – spay & neuter   35,000   35,000 Adoption fees   25,000    25,000 Interest Income   2,000    2,000 Net assets released from restriction:     Satisfaction of program restrictions 27,000 (27,000)  - Capital improvement restriction 15,000 (15,000)   Total Revenues and Other Support 215,000 43,000 15,000 273,000 Expenses       Program Service Expenses       Adoption services   123,000    120,000 Spay and neuter clinic   27,000    30,000 Educational programs   12,000    12,000 Total program service expenses 162,000 - - 162,000        Supporting Service Expenses      Administration   15,000    15,000 Fundraising   10,000    10,000 Total Supporting Services Expenses 25,000 - - 25,000 Total Expenses   187,000 - - 187,000 Change in Net Assets   28,000 43,000 15,000 86,000 Net Assets- Beginning of Year   65,000 12,000 235,000 312,000 Net Assets - End of Year   $ 93,000 $ 55,000 $ 50,000 $ 398,000 Revenues arerecorded within 3 categories Park County Animal Shelter, Inc.Statement of ActivitiesFor the year ended 12-31-2015Revenues  Unrestricted Temporarily Restricted Permanently Restricted Total Contributions   $ 146,000 $ 50,000 $ 15,000 $ 211,000 Grants – spay & neuter   35,000   35,000 Adoption fees   25,000    25,000 Interest Income   2,000    2,000 Net assets released from restriction:     Satisfaction of program restrictions 27,000 (27,000)  - Capital improvement restriction 15,000 (15,000)   Total Revenues and Other Support 215,000 43,000 15,000 273,000 Expenses       Program Service Expenses       Adoption services   123,000    120,000 Spay and neuter clinic   27,000    30,000 Educational programs   12,000    12,000 Total program service expenses 162,000 - - 162,000        Supporting Service Expenses      Administration   15,000    15,000 Fundraising   10,000    10,000 Total Supporting Services Expenses 25,000 - - 25,000 Total Expenses   187,000 - - 187,000 Change in Net Assets   28,000 43,000 15,000 86,000 Net Assets- Beginning of Year   65,000 12,000 235,000 312,000 Net Assets - End of Year   $ 93,000 $ 55,000 $ 50,000 $ 398,000 Expenses are always reported as unrestrictedPark County Animal Shelter, Inc.Statement of ActivitiesFor the year ended 12-31-2015Revenues  Unrestricted Temporarily Restricted Permanently Restricted Total Contributions   $ 146,000 $ 50,000 $ 15,000 $ 211,000 Grants    35,000   35,000 Adoption fees   25,000    25,000 Interest Income   2,000    2,000 Net assets released from restriction:     Satisfaction of program restrictions 27,000 (27,000)  - Capital improvement restriction 15,000 (15,000)   Total Revenues and Other Support 215,000 43,000 15,000 273,000 Expenses       Program Service Expenses       Adoption services   123,000    120,000 Spay and neuter clinic   27,000    30,000 Educational programs   12,000    12,000 Total program service expenses 162,000 - - 162,000        Supporting Service Expenses      Administration   15,000    15,000 Fundraising   10,000    10,000 Total Supporting Services Expenses 25,000 - - 25,000 Total Expenses   187,000 - - 187,000 Change in Net Assets   28,000 43,000 15,000 86,000 Net Assets- Beginning of Year   65,000 12,000 235,000 312,000 Net Assets - End of Year   $ 93,000 $ 55,000 $ 50,000 $ 398,000 There are 2 required categories of expensesPark County Animal Shelter, Inc.Statement of ActivitiesFor the year ended 12-31-2015Revenues  Unrestricted Temporarily Restricted Permanently Restricted Total Contributions   $ 146,000 $ 50,000 $ 15,000 $ 211,000 Grants – spay & neuter   35,000   35,000 Adoption fees   25,000    25,000 Interest Income   2,000    2,000 Net assets released from restriction:     Satisfaction of program restrictions 27,000 (27,000)  - Capital improvement restriction 15,000 (15,000)   Total Revenues and Other Support 215,000 43,000 15,000 273,000 Expenses       Program Service Expenses       Adoption services   123,000    120,000 Spay and neuter clinic   27,000    30,000 Educational programs   12,000    12,000 Total program service expenses 162,000 - - 162,000        Supporting Service Expenses      Administration   15,000    15,000 Fundraising   10,000    10,000 Total Supporting Services Expenses 25,000 - - 25,000 Total Expenses   187,000 - - 187,000 Change in Net Assets   28,000 43,000 15,000 86,000 Net Assets- Beginning of Year   65,000 12,000 235,000 312,000 Net Assets - End of Year   $ 93,000 $ 55,000 $ 50,000 $ 398,000 When we spend cash according to the donor’s wishes, we reclassify $ from Temp. Restricted to UnrestrictedPark County Animal Shelter, Inc.Statement of ActivitiesFor the year ended 12-31-2015Revenues  Unrestricted Temporarily Restricted Permanently Restricted Total Contributions   $ 146,000 $ 50,000 $ 15,000 $ 211,000 Grants    35,000   35,000 Adoption fees   25,000    25,000 Interest Income   2,000    2,000 Net assets released from restriction:     Satisfaction of program restrictions 27,000 (27,000)  - Capital improvement restriction 15,000 (15,000)   Total Revenues and Other Support 215,000 43,000 15,000 273,000 Expenses       Program Service Expenses       Adoption services   123,000    120,000 Spay and neuter clinic   27,000    30,000 Educational programs   12,000    12,000 Total program service expenses 162,000 - - 162,000        Supporting Service Expenses      Administration   15,000    15,000 Fundraising   10,000    10,000 Total Supporting Services Expenses 25,000 - - 25,000 Total Expenses   187,000 - - 187,000 Change in Net Assets   28,000 43,000 15,000 86,000 Net Assets- Beginning of Year   65,000 12,000 235,000 312,000 Net Assets - End of Year   $ 93,000 $ 55,000 $ 50,000 $ 398,000 (Rev – Exp) is called change in net assetsStatement of Cash FlowsFASB uses 3 categoriesOperating – Interest expense, interest revenue, and gains and losses are classified as operatingInvesting – Purchases or sales of fixed assets as well as purchases or sales of long-term investmentsFinancing – Issuance of debt; repayments of principal of debtNot-for-profits have the option of using either the indirect approach or the direct approach plus reconciliation.Statement of Functional Expenses This is a matrix (spreadsheet) of expenses where the columns are the program or supporting activities and the rows are the type of expense (salaries, supplies, depreciation, etc.)This statement shows more detail than the Activity Statement on how the expenses were allocated to programs and supporting services.The purpose of this statement is to show the details of the entity’s spending on direct programs activities versus overhead (supporting services).It helps donors assess entity efficiency. Accounting for ContributionsFASB Statement 116 requires contributions, including unconditional promises of support, to be recognized as contribution revenue in the period received at their fair market value.SFAS 116: Accounting for Contributions Received and MadeSFAS 116 does not change the accounting for exchange transactions (earned revenues). Care should be taken to identify whether membership dues are contributions or exchanges.Not-for-profit organizations must distinguish between contributions that are permanently restricted, temporarily restricted, and unrestricted. Such restrictions are donor-imposed.Accounting for PledgesUnder accrual basis, unconditional pledges are recorded even before the cash is received. Record the receivable at the present value, net of an allowance for estimated uncollectibles If there is expected to be an extended time period before the gift is received record the receivable at its present value:The present value will increase as the expected date of receipt approaches. The change in present value is recorded as additional contribution revenue rather than interest. Contributed ServicesShould contributed services be recorded?Only if theyCreate or enhance a nonfinancial asset ORRequire specialized skills, were provided by someone possessing those skills, and would have been purchased if not donated.Contributed ServicesIf recorded, how should they be recorded?If a nonfinancial asset is enhanced: Dr. Capital Asset (for the value of the services). Cr. Contribution revenues Otherwise: Dr. Expense (for the value of the services). Cr. Contribution revenuesExchanges vs. ContributionsContributions are considered as revenues as soon as received (or pledged) even if the use is restricted. But depending on the terms of the contribution, may later be reclassified from temporarily restricted to unrestricted. If money is received in advance of providing the service on an exchange-like transaction, the amount received is considered Deferred Revenue.Intentions to GivePledges are recorded if unconditional. Intentions to give (oral promises, wills) are often not legally enforceable, as the donors retain legal right to change their mind.Intentions to give are not recorded until the actual gift materializes.Fixed AssetsFixed assets, whether purchased or donated, can be recorded either as Unrestricted assets, orAs temporarily restricted.If initially recorded as temporarily restricted an amount equal to depreciation must be released each year to unrestricted assets.NOTE: Some not-for-profits may prefer the later approach because readers of the financial statements may think ‘unrestricted net assets’ means expendable funds -- listing the long-term assets as temporarily restricted decreases requests to spend reserves that are not really available in a liquid form. Performance EvaluationFASB 117 presents not-for-profit statements in a format similar to business statements.Although revenues and expenses are measured on the accrual basis, the “bottom line” (Change in net assets) is not directly comparable to that of a business.Since many of the revenues are non-exchange, Change in Net Assets is not a measure of organizational effectiveness.Is it Proper for Not-for-Profits to Have a Profit?Legitimate reasons for a not-for-profit to have a profit are: To replace and expand equipment and facilities.To provide working capital.To retire debt.To continue programs beyond the time frame when seed money grants are available. Program Expense RatioThe most commonly used ratio for not-for-profit is the Program Expense Ratio:Program Service Expenses/Total Expenses Program Services include expenses associated with performing the mission of the organizationSupporting Services include management and general; fund raising and membership developmentProgram Expense RatioA high ratio of program expense will assure donors that the organization spends the bulk of dollars donated for its mission oriented activities rather than for overheadThe organization may need to keep detailed time records to properly report costs (e.g. salary) associated with both program and supporting activities.Program vs. Supporting Expense AllocationsBecause of the importance of the program expense ratio, care must be taken in the allocation of joint costs between program and supporting services.Salaries and depreciation must be allocated to the two functions on an equitable basis.Fund raising appeals sometimes also include program elements and not-for-profits would like to allocate some of these costs to programs to improve the program expense ratioProgram vs. Supporting Expense Allocations cont’dThe criteria to determine whether part of the cost of a fund raising campaign applies to program expense are:Purpose: Does the communication help meet program goals and functions?Audience: General audience, not just sent to last year’s donors.Content: Calls for specific action directed at program goals. SFAS 124: Accounting for Certain Investments Held by Not-for-Profit Organizations FASB requires investments with readily determinable market values to be recorded at fair market values and gains and losses be recognizedTransfers of Contributions to Not-for-ProfitsAssume a not-for-profit receives assets from a donor for distribution to a beneficiary:ACCOUNTING ISSUE: If cash or other assets are held by a not-for-profit with instructions to release this money for specified parties, is this a revenue or is it an agency relationship (liability)?SFAS 136: Transfer of Assets to a Not-for-ProfitIf the not-for-profit agrees to transfer the assets to a specified beneficiary, the not-for-profit is deemed to merely be acting as an agent and a liability, rather than a contribution, is recorded.If the not-for-profit has the ability to redirect the assets to another beneficiary, or if the not-for-profit and beneficiary are related, the assets are recorded as a contribution.Transfers of Contributions to Not-for-ProfitsCENTRAL CONCEPT: It is a revenue if the not-for-profit can ‘control’ who gets the money, otherwise it is credited to a liability account because the not-for-profit is only acting as an agent on behalf of the donor. EXCEPTION: If the party receiving the money and the not-for-profit are financially interrelated, then this may be a revenue to the not-for-profit. Consolidation of not-for-profitsThe AICPA Audit and Accounting Guide, Not-for-Profit Organizations, requires consolidation of entities in which a not-for-profit organization has a controlling financial interest. Control may be determined by a majority ownership interest or by holding a majority voting interest in the governing board of an entity in which the not-for-profit has an economic interest through contractual or affiliation agreements. This is similar to practices followed in the public sector with component unit reporting.Mergers of not-for-profitsFASB Statement No. 164, Not-for Profit Entities: Mergers and Acquisitions, permits two different accounting treatments for combinations by not-for-profit organizations. The central issue is whether the combination is a merger or an acquisitionMergers of not-for-profitsA merger is a transaction in which the governing bodies of two or more not-for-profit entities relinquish control of those entities to create a new not-for-profit entity. To qualify as a new entity, the combined entity must have a newly formed governing body. Although commonly there will be a new legal entity, that is not a requirement. The resulting not-for-profit entity will account for the merger using the carryover method. Under the carryover method:Carryover method – book values “carryover” to new entityThe new entity recognizes the assets and liabilities of the separate merging entities in the amounts (and classifications) reported in the financial statements of the merging entities.No internally developed intangible assets (such as goodwill) are recognized.The entity resulting from the merger is a new reporting entity, with no activity before the date of the merger.Acquisition MethodCombinations not meeting the definition of a merger are reported as acquisitions. The accounting treatment is similar to the purchase method of accounting for business combinationsThe essential element of the acquisition method is that the entity records the acquired assets and liabilities at their fair values, not at the acquired entity’s book values. Acquisition AccountingThe not-for-profit entity recognizes the identifiable assets acquired and liabilities assumed at their fair values at the date of acquisition. Noncontrolling interest (if any) is reported at fair value at the acquisition date and is adjusted in subsequent periods in a manner similar to business organizations.Goodwill may be reported.GoodwillNot-for-profit entities that derive their revenues from business-like activities are required to measure and report goodwill as an asset in a similar manner as businesses. However, entities that derive their revenues primarily from contributions are to expense the goodwill at date of acquisition.