PRIVATE NOT-FOR-PROFIT ORGANIZATIONS

Not-for-Profit Organizations Have a different perspective than business enterprises no ownership interest mission is to provide services -- but not at a profit Resources are primarily from voluntary sources, not from user fees Contributors are interested in activities of non-profit organizations: program vs. support can control how funds are used (through restrictions on donations) which provides the rationale for the use of fund acctg. for some non-profits 4 Classifications:
Public GAAP = GASB Univ. of Illinois Stroger Hospital relatively few in number relatively few in number Examples Private GAAP = FASB DePaul Univ. Advocate Hospital Crusade of Mercy DePauls MAHA

Classifications Colleges & Universities Hospitals/Health Care Organizations Voluntary Health & Welfare Organizations (VHWO's) Certain Not-for-Profit Organizations

FASB Standards for PRIVATE Nonprofit Organizations (SFAS 116,117,124 ASC 958) SFAS 116 & 117 (ASC 958) apply to ALL NONGOVERNMENTAL nonprofit organizations (private not-for-profits follow FASB, public not-for-profits follow GASB) Colleges & Universities: no longer able to defer recognition of restricted contributions in operating statements as inflows until expenditures made VHWO's: donated services = contributed services C&U directly to fund balance increase fund balance OLD VHWO Oper. Statement: Public Support increase fund balance NEW ALL NONPROFIT almost all = revenue/gain almost all = revenue/gain

Restricted Contributions Contributions for Endowments

Contributions (ASC 958-605) Unconditional transfer: record as revenue when transfer made Unconditional promise: record as revenue when promise received (if legally binding) Conditional promises: (report net of uncollectible amounts, no bad debt exp.) - if remote probability that condition won't happen, = unconditional - if conditional, NOT recorded as contribution - if assets received but return & use is conditional, DR Receivable & CR Refundable Advance (NOT revenue) Contributions of Monetary/Non-Monetary Assets - revenue when received - value at fair value - if value = present value of future cash flows, future interest = contribution income (NOT = interest income) Contribution of Services - recognize as revenue in period received and value at fair value if 1) create/enhance nonfinancial assets 2) require special skills - footnote disclosures required (description, amount, programs used) Contribution of Collection Items - need not capitalize if 3 requirements met (how used, how cared for, & use or proceeds upon sale) - if choose to capitalize, can't have selective capitalization
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SFAS 117 (ASC 958-210, ASC 958-605) 3 categories of net assets & contributions required on financial statements: Unrestricted Contributions - includes contributions without donor restrictions - if donor restriction fulfilled in same period as when contribution made, OK to put in unrestricted (if policy disclosed & consistently followed) Temporarily Restricted Contributions - per donor explicit or implicit stipulations - includes: 1) contributed asset be spent a) on specific program/activity b) in specific period c) to acquire fixed assets 2) unconditional promise to pay with payments over > 1 period = increase to temp. restricted net assets 3) term endowments Permanently Restricted - = endowment created - Income on principal can be for - any purpose = unrestricted - specified purposes = temporarily restricted - added to principal = permanently restricted - combination of above 3 Contributed Fixed Asset - If explicit donor stipulations exist, = temporary or permanently restricted - temp. turns into unrestric. after period of time - if no explicit donor stipulations exist and - NPO's accounting policy implies time restriction, then = temp. restric. - NPO's accounting policy does NOT imply time restriction, then = unrestricted net asset - expiration of donor restrictions - Time/Purpose Restrictions - reflect in activities stat. as reclass between temp. restr. & unrestr. - Restrictions on contributed L-T assets: - expire over useful life - as deprec. recog. on temp. restr. asset, reclass from TR to UR
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Investments (SFAS 124 ASC 958-320 & ASC 958-325) - record investment in equity (unless equity method used) and debt securities at fair value - investment income reported in statement of activities as unrestricted, temporarily, or permanently restricted, as appropriate - both realized and unrealized gains/losses reported in statement of activities in the period incurred as changes in unrestricted net assets, unless use restricted (temporarily or permanent) - to determine category (unrestricted, temporarily restricted, permanently restricted) of donor-restricted gains/loss 1. Follow donor stipulation, if designated 2. If no donor stipulation, follow state law. 3. If no donor stipulation & no specification in state law, follow SFAS 124. a. If specific asset must be held permanently, = change to permanently restricted net assets. b. If specific asset must be held temporarily, = change to temporarily restricted net assets. c. If principal (not asset) must be held permanently and gains and income can be spent, then losses are not specified: 1. Unrealized gain = increase to unrestricted 2. Unrealized loss & no prior net appreciation = decrease to unrestricted 3. Unrealized loss & prior net appreciation = a. apply first to unexpended gains b. rest decreases unrestricted net assets d. Subsequent gains (after losses) 1. Increase unrestricted until permanent level attained 2. Above permanent level, increases temporarily restricted Long-Lived Assets (SFAS 93 ASC 958-360) - requires depreciation be recorded

Financial Statements for External Reporting NPO's must present financial statements that focus on organization as a whole: Statement of Financial Position Statement of Activities Statement of Cash Flows Statement of Financial Position (see text examples) can be classified or unclassified (i.e., includes/excludes current versus longterm) fund balance terminology NOT used (net assets) classes of net assets (terminology fund balance NOT used) = same as 3 classes of contributions (unrestricted, temporarily restricted, and permanently restricted) OK to disclose board restrictions of unrestricted amounts Statement of Financial Position Current Assets Current Liabilities Cash Accounts Payable Receivables Notes Payable Noncurrent Assets Investments Land, building, equipment Noncurrent Liabilities Long-Term Debt Net Assets Unrestricted Temporarily restricted Permanently restricted

Statement of Cash Flows follows same format as for profit business

Statement of Activities - minimum information required revenue, gains & other support by 3 categories (unrestricted, temp. restr., perm. restr.) expiration of restrictions separately from revenue, gains, expenses & losses all expenses shown in unrestricted expenses by functional classification (eg: program services & supporting activities) expenses by natural classification (by object) OPTIONAL for all but Voluntary Health & Welfare Organizations (eg: salaries, rent, utilities, etc) total changes in 3 classes of net assets gross amounts for revenue and expense (versus peripheral/incidental transactions) Statement of Activities Major Categories Temporarily Permanently Unrestricted Restricted Restricted X X (FAIR X VALUE) X deprec (X) deprec (X) deprec Total X

Revenue, Gains, Other Net Assets Released From Restriction Expenses & Losses Program Services Salaries Utilities Support Activities Change in Net Assets Beginning Net Assets Ending Net Assets

X X X

(X) X X

X X X

X X X

Fund accounting can continue to be used internally and external reporting requirements merely dealt with at year end