Other NFP Financial Reporting Topics

What are the learning objectives of the Other NFP Financial Reporting Topics presentation?

Understand the new requirements of ASU 2016-14, read and analyze financial information in the notes to financial statements, be familiar with information provided in IRS Form 990, understand differences between Form 990 and audited financial statements, and understand NFP audit requirements.

Why is Accounting Standards Update (ASU) 2016-14 significant for NFP reporting?

It represents the first major change to NFP reporting in over 20 years, designed to simplify and improve how NFPs classify net assets and present information about liquidity, financial performance, and cash flows.

What were the main provisions introduced by ASU 2016-14?

It reduces net asset classes to two (with donor restrictions and without donor restrictions), removes the indirect-to-direct method reconciliation requirement on cash flows, and requires enhanced disclosures.

What specific disclosure requirements are mandated by ASU 2016-14?

Composition of net assets with donor restrictions, liquidity management and availability of financial assets within one year, expenses by both nature and function, cost allocation methods, and underwater endowment disclosures.

What role do the notes to the financial statements play in NFP reporting?

They serve as an integral part of the financial statements, act as a roadmap to the numbers, and provide 'the story behind the numbers'.

How does ASU 958 guide the allocation of 'Joint Costs'?

Joint costs meeting specific criteria for purpose, audience, and content can be allocated between program expenses and fundraising expenses rather than entirely charged to fundraising.

How are functional expenses described in NFP accounting policies?

Direct expenses are assigned directly, while shared costs are allocated by management on a consistent basis using financial or nonfinancial data like headcount or time and effort.

What details are typically found in the Net Assets with Donor Restrictions note?

A breakdown of contributions restricted for future periods or specific purposes, plus details on endowment funds and accumulated unspent earnings.

What is the purpose of the Liquidity and Availability of Financial Assets note?

It starts with total financial assets, subtracts amounts unavailable within one year due to restrictions, and yields financial assets available for general expenditures.

What is IRS Form 990?

An information return titled 'Return of Organization Exempt from Income Tax' filed annually with the IRS and required by law to be made public.

What are the three versions of Form 990 based on an NFP's size?

Form 990-N (revenue under $50,000), Form 990-EZ (revenue under $200,000 and assets under $500,000), and Form 990 (revenue of $500,000 or more).

What is Form 990-T used for?

It reports Unrelated Business Income Tax (UBIT) for NFPs receiving income from activities unrelated to their exempt purposes.

What three requirements must an activity meet to be subject to UBIT?

It must be a trade or business, regularly carried on, and not substantially related to furthering the exempt purpose of the organization.

What does the law require regarding NFP executive compensation?

NFPs are required by law to pay only reasonable and not excessive compensation to their executives, or face IRS penalties.

What three-step process does the IRS recommend to determine reasonable compensation?

An independent body conducts a comparability review using data from similar missions and regions, and documents the process and final board decision.

What are some major differences between audited financial statements and Form 990?

Form 990 focuses on governance and allows cash or accrual accounting, whereas audited financial statements follow GAAP accrual basis and include audit opinions and notes.

Does the IRS require financial audits of Form 990s?

No, the IRS does not require financial audits of Form 990s.

What federal threshold triggers a mandatory audit under the OMB Single Audit Act of 1984?

NFPs that expend at least $1,000,000 in federal awards annually are required to have an annual audit.

What external entities besides the federal government may require audited financial statements?

State governments, private foundations during grant proposals, and banks to secure loans.

Is there a legal requirement for audited financial statements to be made available to the general public?

No, unlike Form 990, there is no requirement that audited financial statements be made available to the public.

Where can financial statements and NFP reports be found publicly?

On the NFP's website, ProPublica, GuideStar, state websites, and the Federal Audit Clearinghouse.

What is an Annual Report, and how does it differ from legal documents?

An annual report is not a legal or government document; it is aimed toward donors to show how donations made an impact.

What are the typical characteristics of an NFP Annual Report?

It is design-driven, humanized by individual stories, expresses gratitude to donors, highlights organizational leaders, and may or may not include high-level financials.