Financial and Accounting Guide for Not-for-Profit Organizations

JOHN H. McCARTHY served as the national leader of PricewaterhouseCoopers' Education and Nonprofit Practice before his retirement in 2005. Since then, he has served as the Senior Vice President for Administration and Finance at Northeastern University, an adjunct lecturer at Harvard University's Kennedy School of Government, and on the boards of several educational and nonprofit institutions. NANCY E. SHELMON retired as a senior partner from PricewaterhouseCoopers in 2010 after more than thirty years working with not-for-profit and higher education clients. A frequent speaker at AICPA and state society conferences, she also served as a member of the AICPA's Not-for-Profit Expert Panel for eleven years and has worked with some of the most widely respected not-for-profit organizations in North America. JOHN A. MATTIE serves as PricewaterhouseCoopers' National Education and Nonprofit Practice Leader. He currently serves on the Financial Accounting Standards Board Not-for-Profit Advisory Committee, and is the firm's representative on the AICPA Not-for-Profit Entities Expert Panel and the AICPA Government Audit Quality Control Center.

About the Authors xvii Contributors xix Preface xxi INTRODUCTION Including the FASB Codification 1 CHAPTER 1 Responsibilities for Fiscal Management 5 1.1 Keeping Financial Records for the Organization 6 1.2 Preparing Accurate and Meaningful Financial Statements 6 1.3 Implementing a Budget and Anticipating Financial Problems 7 1.4 Safeguarding Financial Assets and Providing Effective Internal Controls 8 1.5 Complying with Federal and State Reporting and Regulatory Requirements 9 1.6 Communicating Fiscal Information to the Board of Directors and the Audit Committee 9 1.7 Ten Key Points to Consider in Not-for-Profit Fiscal Management 10 1.8 Conclusion 14 PART I KEY FINANCIAL CONCEPTS 15 CHAPTER 2 Accounting Distinctions between Not-for-Profit and Commercial Organizations 17 2.1 Stewardship versus Profitability 17 2.2 Principal Areas of Accounting Differences 18 2.3 Conclusion 22 CHAPTER 3 Cash- versus Accrual-Basis Accounting 23 3.1 Cash and Accrual Statements Illustrated 23 3.2 Combination Cash Accounting and Accrual Statements 27 3.3 Modified Cash Basis 29 3.4 Legal Requirements 30 3.5 Conclusion 30 CHAPTER 4 Fund Accounting and Internal Financial Reporting 31 4.1 Fund Accounting Defined 33 4.2 Categories of Funds 34 4.3 Alternative Fund Groupings 37 4.4 Typical Fund Financial Statements 38 4.5 Transfers between Funds 40 4.6 Elimination of Funds for Reporting Purposes 41 4.7 Conclusion 43 CHAPTER 5 Fixed Assets and Depreciation 45 5.1 General Principles Working Definitions 45 5.2 Property and Equipment Classes and Kinds of Assets 47 5.3 Fixed Assets Where Title May Revert to Grantors 49 5.4 Collections 50 5.5 Fair Value Measurement 51 5.6 Contributions Restricted for Purchase of Fixed Assets 51 5.7 Impairment or Disposal of Long-Lived Assets 52 5.8 Conclusion and Recommendations 55 CHAPTER 6 Investment Income, Gains and Losses, and Endowment Funds 57 6.1 Accounting Principles 58 6.2 Total Return Concept 68 CHAPTER 7 Affiliated Organizations, Pass-Through Transactions, and Mergers 73 7.1 Types of Relationships Often Found 74 7.2 Definition of the Reporting Entity 76 7.3 Mergers of Not-for-Profit Organizations 81 Appendix 7-A Factors to Be Considered in Deciding Whether a Pass-Through Gift Is Truly Revenue and Expense to a Pass-Through Entity 84 Appendix 7-B Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions of Others 87 Appendix 7-C Factors Related to Control That May Indicate That an Affiliated Organization (A) Should Be Combined with the Reporting Organization (R), If Other Criteria for Combination Are Met 91 CHAPTER 8 Contributions, Pledges, and Noncash Contributions 93 8.1 Expendable Current Support 94 8.2 Gifts-in-Kind 99 8.3 Support Not Currently Expendable 103 Appendix 8-A: Checklist: Factors to Be Considered in Deciding Whether a Particular Gift (for Operating Purposes) Should Be Classified as Purpose-Restricted or Not 114 Appendix 8-B: Checklist: Factors to Be Considered in Distinguishing Contracts for the Purchase of Goods or Services from Restricted Grants 116 Appendix 8-C: Checklist: Factors to Be Considered in Assessing Whether Contributed Services Are Considered to Require Specialized Skills 118 Appendix 8-D: Checklist: Factors to Be Considered in Determining Whether an Organization Would Typically Need to Purchase Services If Not Provided by Donation 120 Appendix 8-E: Checklist: Factors to Be Considered in Assessing Whether a Donor Has Made a Bona Fide Pledge to a Donee 123 Appendix 8-F: Checklist: Factors to Be Considered in Deciding Whether a Gift or Pledge Subject to Donor Stipulations Is Conditional or Restricted 126 CHAPTER 9 Accounting Issues Relating to Fundraising 129 9.1 Accounting for Gifts