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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 2017

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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. In 2016 the FASB issued an Accounting Standards Update that brings some important changes to certain aspects of the financial reporting model used by not-for-profit organizations. 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, intangible assets, pension obligations, fair value measurements, revenue recognition, and lease accounting 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 by Accounting Standards Updates as the mechanism 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 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 by the turmoil that was experienced in the financial markets. This changed a bit as the FASB established a Not-for-Profit Advisory Committee which has reexamined the reporting model used by not-for-profit organizations and has made suggestions to the FASB to improve the financial reporting of these organizations. Some of these changes have been promulgated in an Accounting Standards Update issued in 2016. Additional changes may well result from future FASB deliberations. In addition, the American Institute of CPAs (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 also significantly revised its accounting and audit guide for not-for-profit organizations in the recent past.

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:

• Distinguishing characteristics of not-for-profit organizations and their financial accounting and reporting;
• Accounting areas that are unique to not-for-profit organizations;
• General areas of accounting that are applicable to the accounting and financial reporting of not-for-profit organizations.

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 as well as those of the current editorial and production teams.

Richard F. Larkin, CPA
Marie DiTommaso

February 2017

Richard F. Larkin is technical director of not-for-profit accounting and auditing for BDO USA, LLP, in McLean, Virginia. 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 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.

Cross-references between the FASB Accounting Standards Codification (ASC) and Previous Guidance

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 (2013 through September 2015) 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. These 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:

Previous–to ASC:

Accounting Standards Updates Issued During 2014 through 2016