If you did, it's important for you to become a subscriber. John Wiley & Sons, Inc. may publish, on a periodic basis, supplements and new editions to reflect the latest changes in the subject matter that you need to know in order stay competitive in this ever-changing industry. By contacting the Wiley office nearest you, you'll receive any current update at no additional charge. In addition, you'll receive future updates and revised or related volumes on a 30-day examination review.
If you purchased this product directly from John Wiley & Sons, Inc., we have already recorded your subscription for this update service.
To become a subscriber, please call 1-877-762-2974 or send your name, company name (if applicable), address, and the title of the product to:
| mailing address: | Supplement Department John Wiley & Sons, Inc. One Wiley Drive Somerset, NJ 08875 |
| e-mail: | subscriber@wiley.com |
| fax: | 1-732-302-2300 |
| online: | www.wiley.com |
For customers outside the United States, please contact the Wiley office nearest you:
Professional & Reference Division
John Wiley & Sons Canada, Ltd.
22 Worcester Road
Etobicoke, Ontario M9W 1L1
CANADA
Phone: 416-236-4433
Phone: 1-800-567-4797
Fax: 416-236-4447
E-mail: canada@wiley.com
John Wiley & Sons Australia, Ltd.
33 Park Road
P.O. Box 1226
Milton, Queensland 4064
AUSTRALIA
Phone: 61-7-3859-9755
Fax: 61-7-3859-9715
E-mail: brisbane@johnwiley.com.au
John Wiley & Sons, Ltd.
The Atrium Southern Gate, Chichester
West Sussex, PO19 8SQ
UK
Phone: 44-1243-779777
Fax: 44-1243-775878
E-mail: customer@wiley.co.uk
John Wiley & Sons (Asia) Pte. Ltd.
2 Clementi Loop #02-01
SINGAPORE 129809
Phone: 65-64632400
Fax: 65-64634604/5/6
Customer Service: 65-64604280
E-mail: enquiry@wiley.com.sg
Portions of this book have been reprinted from Financial and Accounting Guide for Not-for-Profit
Organizations, 6th Edition, by Malvern J. Gross, Jr., Richard F. Larkin, and John H. McCarthy, Copyright © 2000 by John Wiley & Sons, Inc. Reprinted by permission of John Wiley & Sons, Inc. Portions of this book have been reprinted from Wiley GAAP 2002, Interpretation and Application of Generally Accepted Accounting Principles, by Patrick R. Delaney, Barry J. Epstein, Ralph Nach, and Susan Weiss Budak, Copyright © 2001 by John Wiley & Sons, Inc. Reprinted by permission of John Wiley & Sons, Inc. Portions of this book have their origin in the AICPA Audit and Accounting Guide: Not-for-Profit Organizations (NFP Audit Guide). These are noted by reference in each chapter. Copyright © by the American Institute of Certified Public Accountants, Inc., Harborside Financial Center, 201 Plaza 3, Jersey City, NJ 07311. Portions of this book have their origin
in copyrighted materials from the Financial Accounting Standards Board.
These are noted by reference to the specific pronouncement. Complete copies are available directly from the FASB. Copyright © by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116, USA.
This edition first published 2015
© 2015 John Wiley and Sons Ltd
Registered office
John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ , United Kingdom
For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please visit our website at www.wiley.com.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom. If professional advice or other expert assistance is required, the services of a competent professional should be sought.
ISBN 978-1-118-94524-7 (paperback) ISBN 978-1-118-94522-3 (ebk)
ISBN 978-1-118-94521-6 (ebk) ISBN 978-1-118-94520-9 (ebk)
Trademarks: Wiley and the Wiley Publishing logo are trademarks of John Wiley and Sons, Inc. and/or its affiliates in the United States and/or other countries, and may not be used without written permission. IFRS is a registered trademark of The International Accounting Standards Board. All other trademarks are the property of their respective owners. Wiley Publishing, Inc. is not associated with any product or vendor mentioned in this book.
Not-for-profit accounting is a specialized field of accounting that is receiving a growing level of attention. Over one million not-for-profit organizations currently operating in the United States have unique accounting and financial reporting issues that must be understood by a growing number of not-for-profit organization financial statement preparers and users.
The Financial Accounting Standards Board (FASB) has issued a series of statements and accounting standards updates that have significantly affected how not-for-profit organizations account for and report their activities and financial position. The overall financial statement format reports “net assets” instead of fund balance or other description of “equity, ” and the accounting principles for two key areas for these organizations—contributions and investments—were the topics of separate FASB pronouncements. The American Institute of Certified Public Accountants (AICPA) issued a pronouncement specifying how not-for-profit organizations should account for the joint costs of activities that include fund-raising. The FASB has also issued a statement detailing the accounting for resources which a not-for-profit organization passes through to another organization. The FASB has also finalized the accounting requirements that will apply when two not-for-profit organizations combine, and has also provided guidance for reporting endowments. The FASB has also been active in many areas that affect a broad range of business and other organizations, including not-for-profit organizations. For example, financial instruments, asset impairments, intangible assets, pension obligations, and fair value measurements have all been areas that have been impacted by recent FASB pronouncements. All of these topics are examined in detail in this book.
This book incorporates the codification of accounting standards into the FASB Accounting Standards Codification (the “Codification” or “FASB ASC”). The FASB essentially eliminated the statements on standards and other accounting literature and replaced them with the FASB ASC, which is updated as the means of promulgating changes in generally accepted accounting principles.
Despite the steady stream of accounting pronouncements that affect not-for-profit organizations, it's important to understand that accounting standards setting over the past decade has been influenced by a great deal of recent change. The Sarbanes–Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) which has responsibility for setting auditing and other standards for public companies. Even with all of the new requirements and changes, the FASB continues to set generally accepted accounting principles for both public and nonpublic entities, including not-for-profit organizations. However, the FASB's agenda has focused more on issues affecting public companies, which has likely been influenced by the changes in the regulatory environment and issues highlighted by the numerous accounting shortcomings, and more recently by the turmoil being experienced in the financial markets. This is likely to change a bit as the FASB has established a Not-for-Profit Advisory Committee which has begun a reexamination of the reporting model used by not-for-profit organizations and has made suggestions to the FASB to improve the financial reporting of these organizations. The near future will likely see FASB action to address some of the recommendations of its Advisory Committee. In addition, the AICPA, through technical practice aids, industry risk alerts, and accounting and auditing guides, continues to be an important contributor to the body of accounting principles used by not-for-profit organizations. It has also finalized a significant revision of its accounting and audit guide for not-for-profit organizations.
This book is designed as a complete and easy-to-use reference guide for financial statement preparers and users, as well as for auditors of not-for-profit organizations. It focuses on three key areas:
This book would not have been possible without the hard work and efforts of several individuals. John DeRemigis and Pam Reh contributed greatly to the production efforts over many years. The authors are greatly appreciative of their efforts.
Richard F. Larkin, CPA
Marie DiTommaso
July 2014
Richard F. Larkin is technical director of not-for-profit accounting and auditing for BDO USA, LLP, in Bethesda, Maryland. Previously he was the technical director of the Not-for-Profit Industry Services Group in the national office of PricewaterhouseCoopers. He is a certified public accountant with over forty years of experience serving not-for-profit organizations as independent accountant, board member, treasurer, and consultant. He teaches, speaks, and writes extensively on not-for-profit industry matters and is active in many professional and industry organizations. He has been a member of the Financial Accounting Standards Board Not-for-Profit Advisory Task Force and the AICPA Not-for-Profit Organizations Committee, and chaired the AICPA Not-for-Profit Audit Guide Task Force. He participated in writing both the third and fourth editions of Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, and the AICPA Practice Aid, Financial Statement Presentation and Disclosure Practices for Not-for-Profit Organizations. He graduated from Harvard College and has an MBA from Harvard Business School. He is a coauthor of the fourth, fifth, and sixth editions of Financial and Accounting Guide for Not-for-Profit Organizations, which were published by John Wiley & Sons, Inc.
Marie DiTommaso has thirty years of experience in accounting and financial reporting in both the not-for-profit and commercial accounting environments. She began her career with KPMG after graduating from Queens College of the City University of New York. Later in her career, she joined the American Express Company and then Dun & Bradstreet Corporation, both to develop, write, and implement accounting policies and procedures. After leaving these corporate organizations, Ms DiTommaso served as the chief financial officer of a not-for-profit organization.
Ms DiTommaso is a member of the American Institute of Certified Public Accountants. She has served as President of the Bergen County chapter of the New Jersey Women Business Owners Association, and as an advisor to its Board of Directors.
As more fully described in Chapter 1, the source of all authoritative generally accepted accounting principles for not-for-profit organizations is now contained in the FASB Accounting Standards Codification (ASC). The following tables cross-reference several of the more common ASC sections with the prior FASB pronouncements to assist readers in navigating the ASC. References in these charts to the AICPA Audit & Accounting Guide are to the 2012 edition of the Guide. Some chapters have been rearranged in the 2013 edition.
An additional table in this section provides the reader with a list of the relatively recently issued (2012 through July 2014) Accounting Standards Updates (“ASUs” which amend the ASC) issued by the FASB. Most of the ASUs will not affect the accounting and financial reporting for many, if not all, not-for-profit organizations and are not discussed in this book. However, it is important for the reader to be aware of the changes being made to the ASC so that any potential impacts of these changes can be evaluated. Note that several ASUs beginning in 2014 are the result of consensus of the FASB's Private Company Council, which provides a simplified method of accounting and reporting for certain transactions of private business entities. There ASUs are not applicable to not-for-profit organizations.
Where a specific ASU is addressed in a chapter of this book, that chapter is indicated in the table.
ASC–from previous:
| ASC | Subject Matter | Previous Guidance (primarily) |
| 958- | ||
| 10 | Overall | AAG (AICPA audit guide) Ch. 1 Para 15.04 |
| 20 | Financially-interrelated entities | FAS 136 |
| 30 | Split-interest agreements | AAG Ch. 6 DIG B-35 |
| 205 | Presentation of financial statements | FAS 117, FSP 117-1, FAS 124 |
| 210 | Balance sheet | FAS 117 |
| 225 | Income statement | FAS 117, others |
| 230 | Statement of cash flows | FAS 117, AAG Ch. 3 |
| 310 | Receivables | FAS 116, AAG Ch. 5 & others |
| 320 | Investments—debt and equity securities | FAS 124, AAG Ch. 8 |
| 325 | Investments—other | FAS 124, FSP 124-1, AAG Ch. 8 |
| 360 | Property, plant, and equipment | FAS 116, FAS 93, AAG Ch. 7, 9 |
| 405 | Liabilities | AAG Ch. 10, 11, 13, EITF D-089 |
| 450 | Contingencies | FAS 116, AAG Ch. 10, 3 |
| 470 | Debt | AAG Ch. 10 |
| 605 | Revenue recognition | FAS 116, FAS 136, AAG Ch. 5 |
| 715 | Compensation—retirement benefits | FAS 87, 88, 106, 132 (R), 158 |
| 720 | Other expenses | FAS 117, SOP 98-2, AAG Ch. 13 |
| 805 | Combinations | FAS 164 |
| 810 | Consolidation | SOP 94-3, FSP 94-3-1, EITF 90-15, 96-21, ARB 51 |
| 815 | Derivatives and hedging | DIG B-35 |
| 840 | Leases | SOP 94-3, EITF 90-15, 96-21, 97-01 |
Previous–to ASC:
| Previous Guidance | Subject Matter | ASC (primarily) |
| FAS 87, 88, 106, 132(R), 158 | Retirement benefits | 958-715 |
| FAS 93 | Depreciation | 958-360 |
| FAS 116 | Contributions | 958-605 |
| FAS 117 | Financial statement presentation | 958-205, 210, 225, 230, 720 |
| FSP 117-1 | Endowments | 958-205 |
| FAS 124 | Investments | 958-320, 325, 205 |
| FSP 124-1 | Investments | 958-325 |
| FAS 136 | Pass-through gifts | 958-605, 20 |
| FAS 157 | Fair value | 820 |
| FAS 164 | Combinations | 958-805 |
| FIN 48 | Uncertain tax positions | 740-10 |
| DIG B-35 | Derivative in a split-interest | 958-30, 815 |
| SOP 94-3 | Consolidation | 958-810 |
| FSP 94-3-1 | Consolidation | 958-810 |
| SOP 98-2 | Joint costs | 958-720 |
| AAG-NPO Chapter: | ||
| 1 | Introduction | 958-10 |
| 2 | Auditing | (not in ASC) |
| 3 | Financial reporting | 958-205, 210, 230 |
| 4 | Cash | 958-210 |
| 5 | Contributions | 958-605, 310 |
| 6, DIG B-35 | Split-interest | 958-30, 815 |
| 7 | Other assets | 958-605, 360 |
| 8 | Investments | 958-320, 325 |
| 9 | Property, plant, and equipment | 958–360 |
| 10 | Liabilities | 958-405, 450, 720 |
| 11 | Net assets | 958-225 |
| 12 | Exchange transactions | 958-605, 310 |
| 13 | Expenses | 958-720, 225 |
| 14 | Auditors' reports | (not in ASC) |
| Para. 15.04 | Tax | 958-10 |
| Rest of Ch. 15 | Tax | (not in ASC) |
| 16 | Fund accounting | (not in ASC) |
| ASU Number | Topic | Chapter |
| 2012-01 | Health Care Entities (Topic 954): Continuing Care Retirement Communities—Refundable Advance Fees | |
| 2012-02 | Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment | 22 |
| 2012-03 | Technical Amendments and Corrections to SEC Sections | |
| 2012-04 | Technical Corrections and Improvements | |
| 2012-05 | Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows | 5 |
| 2012-06 | Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution | |
| 2012-07 | Entertainment—Films (Topic 926): Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs | |
| 2013-01 | Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities | 3 |
| 2013-02 | Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income | |
| 2013-03 | Financial Instruments (Topic 825): Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities | 29 |
| 2013-04 | Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date | 23 |
| 2013-05 | Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity | |
| 2013-06 | Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate | 11 |
| 2013-07 | Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting | |
| 2013-08 | Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements | |
| 2013-09 | Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04 | |
| 2013-10 | Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes | 29 |
| 2013-11 | Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists | |
| 2013-12 | Definition of a Public Business Entity | 1 |
| 2014-1 | Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects | |
| 2014-02 | Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill—a consensus of the Private Company Council | |
| 2014-03 | Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach—a consensus of the Private Company Council | |
| 2014-04 | Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Loans upon Foreclosures | |
| 2014.05 | Service Concession Arrangements (Topic 853) | 28 |
| 2014-06 | Technical Corrections and Improvements Related to Glossary Terms | |
| 2014-07 | Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements—a consensus of the Private Company Council | |
| 2014-08 | Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity | |
| 2015-09 | Revenue from Contracts with Customers (Topic 606) | 9 |
| 2014-10 | Development State Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation | |
| 2014-11 | Transfers and Service (Topic 860): Repurchase-to-Maturity Transaction, Repurchase Financings, and Disclosures | |
| 2014-12 | Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period |