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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.
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ISBN 978-1-119-39618-5 (Paperback)
ISBN 978-1-119-39620-8 (ePDF)
ISBN 978-1-119-39619-2 (ePub)
ISBN 978-1-119-39616-1 (obk)
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:
This book would not have been possible without the hard work and efforts of many 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 2018
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:
| 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) |
| Accounting Standards Updates Issued During 2016 - February 2018 | ||
| ASU Number | Topic | Chapter |
| 2016-01 | Financial Instruments—Overall (Topic 825-10) Recognition and Measurement of Financial Assets and Liabilities | |
| 2016-02 | Leases (Topic 842) | 28 |
| 2016-03 | Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815) Effective Date and Transition Guidance (a consensus of the Private Company Council) | |
| 2016-04 | Liabilities—Extinguishments of Liabilities (Subtopic 405-20) Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force) | |
| 2016-05 | Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force) | |
| 2016-06 | Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force) | |
| 2016-07 | Investments—Equity Method and Joint Ventures (Topic 323) Simplifying the Transition to the Equity Method of Accounting | 10 |
| 2016-08 | Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net) | |
| 2016-09 | Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting | |
| 2016-10 | Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing | 9 |
| 2016-11 | Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update) | |
| 2016-12 | Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical Expedients | |
| 2016-13 | Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments | |
| 2016-14 | Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities | 3,5,8,9,14 |
| 2016-15 | Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force | 5 |
| 2016-16 | Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory | |
| 2016-17 | Consolidation (Topic 810) Interests Held through Related Parties That Are under Common Control | |
| 2016-18 | Statement of Cash Flows (Topic 230) Restricted Cash (a consensus of the FASB Emerging Issues Task Force) | 5 |
| 2016-19 | Technical Corrections and Improvements | |
| 2016-20 | Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers | 9 |
| 2017-01 | Business Combinations (Topic 805): Clarifying the Definition of a Business | |
| 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 | 11 |
| 2017-03 | Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update) | |
| 2017-04 | Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | 22 |
| 2017-06 | Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting (a consensus of the Emerging Issues Task For | |
| 2017-07 | Compensation—Retirement Benefits (Topic 715) Improving the Presentation of Periodic Pension Cost and Net Periodic Postretirement Benefit Cost | 25 |
| 2017-08 | Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities | 10 |
| 2017-09 | Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting | |
| 2017-10 | Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force) | |
| 2017-11 | Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 840); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception | |
| 2017-12 | Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities | 29 |
| 2017-13 | Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (SEC Update) | |
| 2017-14 | Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue Contracts with Customers (Topic 606) (SEC Update) | |
| 2017-15 | Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995 | |
| 2018-01 | Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 | 28 |
| 2018-02 | Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income | |