Understanding and analyzing not-for-profit financial
statement format presentations
April 19, 2012
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Welcome
Jennifer Hoffman
Vanessa Kuehn
Audit Partner
Not-for-Profit and Higher Education Practice
Audit Senior Manager
Not-for-Profit and Higher Education Practice
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5
Agenda
• What is required versus what is allowed
• Review of different financial statement options
• Review of additional specific examples
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6
Agenda
• What is required versus what is allowed
• Review of different financial statement options
• Review of specific examples
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What is required
• There are specific items that are required to be
reported in each financial statement
• Significant variability in practice as to how these
required items are presented
• Wide variety of practice in general presentation
choices, which is not specific to individual financial
statements
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General differences
• Titles of the Statements
– Statement of Financial Position vs. Balance Sheet
– Statement of Activities vs. Income Statement
• Level of disaggregation for components of each statement
• Standard statement that notes are an integral part of the
financial statements
• Prior year comparative information
• Definition of operational measure
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Statement of financial position
•
•
•
•
•
Required components
Classified versus non-classified presentation
Combined versus combining
Level of detail presented on the “face” of the statement
Common challenges
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Statement of financial position
• Required components
–
–
–
–
–
–
–
Total assets
Total liabilities
Total unrestricted net assets
Total temporarily restricted net assets
Total permanently restricted
Total net assets
Information about the nature and extent of donor-imposed
restrictions must either be presented on the face (“for
program A”) or in the notes to the financial statements.
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Statement of financial position
• Classified versus non-classified presentation
– Not-for-profit organizations are not required to present a
classified statement of position
– Sequencing in order of liquidity is sufficient to meet the
requirement.
– Not prohibited from being presented, but can raise
challenges for record-keeping and correct presentation
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Any Religious
Organization - Classified
Statements of Financial
Position
June 30, 2010, with
comparative totals for
2009
13
Statement of financial position
• Combined versus combining
– Often, combining information is presented in
supplemental schedules
– Can be on the “face” of the statements
– Also can include “fund” information (e.g. operating
versus endowment balances)
– and correct presentation
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Statement of financial position
• Level of detail presented on the “face” of the statement
– No specific requirements
– Variety in practice
• Investments
• Fixed Assets
• Net assets
• Parenthetical disclosures about allowances
– Assets whose use is limited (can be on the “face” or in
the notes)
– Commitments and contingencies
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Statement of financial position
• Common challenges
– Quasi-endowments versus donor-restricted limitations
– Restricted Cash and Investments
– Agency Transactions
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Statement of activities
•
•
•
•
•
Required components
Columnar versus stacked presentation
Number of columns presented
Common differences
Defining operations
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Statement of activities
• Required components
–
–
–
–
–
–
Change in net assets by total and by class
Revenues
Expenses
Gains
Losses
Reclassifications
• There is no required “order” for the items above
• They can be rearranged to suit the needs of the
organization.
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Statement of activities
• Columnar versus stacked presentation
– Columnar presentation shows the change in net asset
class side by side.
• Usually on a single page
• Allows for clear presentation of reclassifications
between net asset class
– Stacked presentation shows the change in net assets by
each net asset class one below the other
• Usually on more than one page
• Allows for easier comparison to prior year.
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Statement of activities
• Number of columns presented
–
–
–
–
Number of columns is at the discretion of the organization
Always need to show total change in unrestricted net assets.
Typically see the “traditional” three columns and a total
Can disaggregate those columns if desired, typically
unrestricted amounts:
• Fixed assets
• Operating fund versus board designated funds
– Budget versus actual operating results
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Example of Investment Return
Statements of Activities
June 30, 2010 and 2009
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Statement of activities
• Common differences
– Levels of disaggregation
• How much is too much?
• What do readers need to know?
• What adds to their understanding of your operations?
– Investment returns
• All in operations versus none in operations
• Some in operations and some in non-operating depending on
spending policy
• Interest and dividends combined with investment returns
• Investment expense combined with investment returns
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Statement of activities
• Defining operations
– Guidance does not specify a formulaic operational
measure for all organizations (no “performance
indicator,” like in healthcare)
– Do need to define in the notes if it isn’t clear what is
included or excluded from “operations” on the face of
statement of activities.
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Statement of activities
• Specific examples
– Columnar
– Stacked
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Statement of cash flows
•
•
•
•
Required components
Direct versus indirect
Gross versus net presentation
Common challenges
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Statement of cash flows
• Required components
– Beginning and ending cash balances
– Operating, investing and financing cash flows
– Disclosure of non-cash (or partially non-cash) items
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Example – Any University
Statements of Cash Flows
June 30, 2010 and 2009
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Statement of cash flows
• Direct versus indirect
– Only affects the operating section of the statement
– Direct method
• Does not start from change in net assets
• More challenging to gather data
• Requires reconciliation of net assets to net cash in a
separate statement or in the footnotes
– Indirect method
• Less detailed information about operations
• Often required by lenders
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Statement of cash flows
• Gross versus net presentation
– Most items are required to be reported on a gross basis
– Exception when:
• the turnover in an item is quick
• the amounts are large
• the maturities are short
– Examples: investments (other than cash equivalents),
loans receivable, and short-term debt with maturities
less than 3 months
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Statement of cash flows
• Common challenges
– Disclosure of non-cash items
• Borrowings against line of credit to pay interest or other
purchases
• Contributions of non-cash donations (stock, in-kind)
• Purchases of fixed assets still in accounts payable
– Permanently restricted contributions
• Accrual basis in operating section
• Cash basis in financing section
– Netting
• Use and payment on lines of credit
• Purchases and sales of investments
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Statement of functional expenses
•
•
•
•
Required components
Full statement versus disclosure in notes
Level of disaggregation
Example
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Statement of functional expenses
• Required components
– Program expenses
– Supporting activities
• Does not include losses (investment losses or loss on sale
of fixed assets)
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Statement of functional expenses
• Full statement versus disclosure in notes
– A voluntary health and welfare entity (a VHWE) is required to have a
full statement of function expenses
• A VHWE is defined as a not-for-profit entity that derives its
revenue primarily from voluntary contributions from the general
public.
• The general public excludes governmental entities
• Requires both function and natural classifications on the
horizontal and vertical axes of the statement.
– All other entities are allowed to report functional expenses in a
footnote or on face of statement of activities.
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Statement of functional expenses
• Level of disaggregation
– There is no “required” level of detail for either functional
or natural classifications
– The most important functional factors:
• Program support
• Supporting services
• Any fundraising costs
– The most important natural factor:
• What the reader will find useful to their analysis
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Statement of functional expenses
• Level of disaggregation
– Some organizations are disaggregating both revenues
and expenses to show the cost of individual programs.
– This is usually shown in supplemental schedules to the
primary financial statements.
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Agenda
• What is required versus what is allowed
• Review of different financial statement options &
Review of additional examples
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Any University
Statements of Financial
Position
June 30, 2010 and 2009
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Any Foundation
Statements of Financial Position
Years ended August 31, 2010
and 2009
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Any Foundation
Statements of Activities
Years ended August 31, 2010
and 2009
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Any Religious
Organization
Statements of Activities
and Changes in Net
Assets
June 30, 2010, with
comparative totals for
2009
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43 43
Any Museum Statements of Activities
Years ended June 30,
2010 and June 30, 2009
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Any Museum
Statements of Cash Flows
Years ended June 30,
2010 and June 30, 2009
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Any Foundation
Statements of Cash Flows
Years ended
August 31, 2010 and 2009
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Any Religious Organization
Statements of Cash Flows
June 30, 2010 and 2009
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Any Religious Organization
Statements of Functional Expenses
June 30, 2010, with comparative totals for
2009
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Any questions?
Please type your questions49or comments into the Q&A
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Disclaimer
This Grant Thornton LLP presentation is not a comprehensive analysis of the
subject matters covered and may include proposed guidance that is subject to
change before it is issued in final form. All relevant facts and circumstances,
including the pertinent authoritative literature, need to be considered to arrive at
conclusions that comply with matters addressed in this presentation. The views
and interpretations expressed in the presentation are those of the presenters and
the presentation is not intended to provide accounting or other advice or guidance
with respect to the matters covered.
For additional information on matters covered in this presentation, contact your
Grant Thornton LLP adviser.
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