ANALYSIS OF FASB 117
(Financial Accounting Standards Board)
"FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ORGANIZATIONS"
FASB 117 "Financial Statement of Not-For-Profit Organization" amends FASB 95 "Statement of Cash Flows", to extend its provisions to not-for-profit entities and requires voluntary health and welfare organizations to continue, and encourages other not-for-profit organizations to provide a Statement of Functional Expenses. While the FASB illustrates financial statement formats in its appendix, it does not require any specific statement format.
It does however require a complete set of financial statements to include:
Some key definitions included in the statement are:
- Temporary Restriction - A donor-imposed restriction that permits the donee organization to use up or expand the donated asset as specified and is satisfied either by the passage of time or by actions of the organization
- Temporarily Restricted Net Assets - The part of the net assets of a not-for-profit organization resulting (a) from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the organization pursuant to those stipulations, (b) from other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) form reclassification to (or from) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or their fulfillment and removal by actions of the organization pursuant to those stipulations.
- Permanent Restriction - A donor-imposed restriction that stipulates that resources be maintained permanently but permits the organization to use up or expend part of all of the income (or other economic benefits) derived from the donated assets.
- Permanently Restricted Net Assets - The part of the net assets of a not-for-profit organization resulting (a) from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization, (b) from other asset enhancements and diminishments subject to the same kinds of stipulations , and (c) from reclassification from (or to) other classes of net assets as a consequence of donor-imposed stipulations.
- Unrestricted Net Assets - The part of net assets of a not-for-profit organization that is neither permanently restricted nor temporally restricted by donor-imposed stipulations.
- Temporarily Restricted Support - Donor-restricted revenues or gains from contributions that increase temporarily restricted net assets.
- Permanently Restricted Support - Donor-restricted revenues or gains from contributions that increase permanently restricted net assets.
- Unrestricted Support - Revenues or gains from contributions that are not restricted by donors.
STATEMENT OF FINANCIAL POSITION
- A statement of Financial Position must be prepared for the organization as a whole presenting the total amounts of assets, liabilities, and net assets.
- Either the Statement of Financial Position or the notes must provide information on liquidity, financial flexibility (i.e. restrictions) and interrelationship of assets and liabilities.
- The information should be aggregated into reasonably homogenous groups. Cash or other assets that are received with donor-imposed restrictions should not be classified with cash or other assets that are unrestricted and therefore, not available for current use.
- Information about liquidity can be provided by listing assets and liabilities in order of liquidity, classifying assets and liabilities in accordance with ARB 43 (Accounting Research Bulletin), or disclosure in footnotes.
- The amounts of each of the following classes of assets, based on the existence or absence of donor-imposed restrictions, must be included:
STATEMENT OF ACTIVITIES
- Like the Statement of Financial Position, the Statement of Activities should focus on the organization as a whole. Although fund accounting and reporting by fund groups is not advocated under FASB 117, the Statement does not preclude a not-for-profit entity from providing this disaggregated information by fund groups as supplemental data.
- The Statement of Activities must report the change in unrestricted net assets, temporarily- restricted net assets, permanently-restricted net assets and total net assets.
- Revenues increase unrestricted net assets, temporarily-restricted net assets, or permanently-restricted net assets depending upon the absence or existence of donor-imposed restrictions.
- Gains or losses on investments will generally increase or decrease unrestricted net assets, unless their use is limited by donor-imposed restrictions.
- The removal, expiration, or satisfaction of a donor imposed condition or restriction will result in a transfer between temporarily-restricted, permanently-restricted, or unrestricted support.
Although FASB 117 does not encourage or discourage further classifications such as operating and nonoperating etc., if the organization uses such terms these classifications must, at a minimum, be included in a financial statement that reports the change in unrestricted net assets for the period.
STATEMENT OF FUNCTIONAL EXPENSES
Expenses result in decreases in unrestricted net assets. Expenses must be disclosed by functional classification either in the Statement of Activities or in the footnotes:
- Program Services generally include goods and services distributed to beneficiaries, customers, or members to fulfill the purpose a mission of the organization.
- Management and General activities include general oversight, business management, general record keeping, budgeting, finance and other management and administrative activities.
- Fund Raising activities include publicizing and conducting fund-raising campaigns, maintaining donor mailing lists, conducting special fund-raising events, preparing and distributing activities involved in the solicitation of contributions from individuals, foundations, government agencies, etc.
- Membership - Development activities include soliciting for prospective members and memberships dues, membership relations, and similar activities.
Voluntary health and welfare organizations are required to continue to report information about expenses by functional and natural classifications in matrix format in a separate financial statement. Other not-for-profit entities are required to report functional classifications and are encouraged, but not required, to provide information about the natural classification of expenses.
STATEMENT OF CASH FLOWS
FASB 117 amends a number of sections of FASB 95 to require not-for-profit organizations to include a Statement of Cash Flows as a part of a complete set of financial statements.
FINANCIAL STATEMENT DISCLOSURES
Both FASB 116 and 117 require specific disclosures for not-for-profit entities and encourage certain other financial statement disclosures.
- Contributed Services - An entity that receives contributed services must describe the programs or activities for which the services were used, the nature and extent of the contributed services received during the period and the amount recognized as revenue. Entities are encouraged to disclose the fair value of contributed services received but not recognized as revenues, if it is practical to do so.
- Temporarily Restricted Support - If an entity reports as unrestricted support, contributions with donor-imposed restrictions that are met in the same accounting period, it must disclose this in its accounting policy note and must apply this policy consistently from period to period.
- Gifts of Long-Lived Assets If an entity receives a gift of a long-lived asset that does not contain a stipulation as to how long the asset must be used, it is reported as restricted support if it is the organization's policy to imply a time restriction over the useful life of the asset.
- Promises to Give - Recipients of unconditional promises to give must disclose the amounts of promises receivable in less than one year, one year to five years, and more than five years as well as the amount of allowance for uncollectible promises receivable.
- Recipients of conditional promises to give must also disclose the total amounts promised and a description and amount for each group of promises possessing similar characteristics.
- Contributions of Works of Art or Collections Items - There are a number of disclosure requirements concerning contributions of this type.
- Permanent and Temporary Restrictions - Information about the nature and amount of different types of permanent and temporary restrictions must be provided including distinguishing between permanent restrictions of holdings of assets which stipulate that they must be used for a specific purpose, preserved, or not sold and assets donated with the stipulation that they be invested to provide a permanent source of income (permanent endowment).
- Board Designations - Board-designated endowments of unrestricted, assets must be classified with unrestricted net assets but disclosed either in the body of the financial statement or in the notes as board designated.
- Depreciation - FASB 93 requires a not-for-profit entity to provide the same information concerning depreciation as for-profits do. In performing audits and preparing financial statements of not-for profit organizations,
FASB 117 was issued in June 1993 and has an effective date for fiscal years beginning after December 15, 1994. For those not-for-profits organizations that have less than $5 Million in total assets and less than $1 Million in annual expenses, the effective date is delayed until fiscal years beginning after December 15, 1995.
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