New Accounting and Auditing Guidance for Not-for-Profit Organizations
Ratcliffe, Thomas A., Grice, John Stephen, The National Public Accountant
In May 1998, the Not-for-Profit Organization Committee of the American institute of Certified Public Accountants (AICPA) issued an updated accounting and auditing guide related to not-for-profit reporting entities, entitled Not-for-Profit Organizations. The 1996 Guide, updated previous accounting and auditing guidance primarily to include the financial reporting requirements associated with Statement of Financial Accounting Standards (SFAS) No. 116, entitled Accounting for Contributions Received and Contributions Made, SFAS No. 117, entitled Financial Statement of Not-for-Profit Organizations, and SFAS No. 124, entitled Accounting for Certain Investments Held by Not-for-Profit Organizations. Subsequently, several new accounting and auditing documents were issued that resulted in the need to modify the 1996 Guide. As such, the AICPA issued a revised 1998 Guide applicable to these reporting entities that incorporated these revised technical literature requirements. This article explains the conforming changes a ssociated with the 1998 Guide.
New Accounting Literature Requirements
The new accounting provisions incorporated in the 1998 Guide include issues related to the following types of documents: Statements of Position (SOP); SFASs, and Financial Accounting Standards Board (FASB) Interpretations (FASBINs). This section briefly discusses several of the recent documents that made the 1998 Guide necessary. Exhibit 1 summarizes the new literature discussed in this section that has been incorporated into the 1998 Guide.
FASBIN No. 42, entitled Accounting for Transfers of Assets in Which a Not-for-Profit Organization Is Granted Variance Power, indicates that a recipient organization that is directed by a resource provider to distribute transferred assets, income from those assets or both to a specified third-party beneficiary acts as a donee/donor, if the recipient organization has variance power over the distribution. The recipient organization has variance power over the distributions when the resource provider explicitly grants the recipient organization the unilateral power to redirect the use of the transferred assets to another beneficiary FASBIN No. 42 was issued in September 1996 and is effective for financial statements issued for fiscal years ending after September 15, 1996, with earlier application encouraged. The provisions of FASBIN No. 42 may be implemented either retroactively or by reporting the cumulative effect of the change in the year of the change.
SFAS No. 126 entitled, Exemption from Certain Required Disclosures about Financial Instruments for Certain Nonpublic Entities, amends SFAS No. 107 entitled, Disclosures about Fair Value of Financial Instruments, to make the disclosures about fair value of financial instruments prescribed in SFAS No. 107 optional for certain nonpublic entities. SFAS No. 107 requires organizations to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. According to SFAS No. 126, reporting entities that meet the following criteria are not required to provide these disclosures in financial statements:
* The entity is a nonpublic entity;
* The entity has total assets of less than $100 million as of the balance sheet;
* The entity has not held or issued any derivative financial instruments, as defined in SFAS No. 133 entitled, Accounting for Derivative Instruments and Hedging Activities, other than loan commitments during the reporting period.
In June 1997, the FASB issued SFAS No. 131, entitled Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 supersedes SFAS No. 14 [as amended], entitled Financial Reporting for Segments of a Business Enterprise. SFAS No. 131 makes two fundamental changes to the technical literature related to disclosure requirements applicable to segment information presented in financial statements of publicly traded entities:
* Reportable segments now are determined based upon how management of the reporting entity evaluates those segments-- a "management approach". …