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Not-for-Profit Entities - AICPA Audit and Accounting Guide
Description
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This guide summarizes new standards, guidance, and practices, and delivers "how-to" advice for handling audit and accounting issues common to not-for-profit entities.
Updated with conforming changes as of March 1, 2010, the guide includes relevant guidance contained in official standards and other technical sources, including the FASB Accounting Standards Codification™, The guide offers practical guidance on recent developments in areas such as risk assessment, fair value measurements, and mergers and acquisitions. All content is reviewed by industry experts and approved by the appropriate AICPA senior technical committee(s).
The following new standards are particularly significant to this guide and are reflected in this edition:
- Accounting Standards Update No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements
- Accounting Standards Update No. 2010-07, Not-for-Profit Entities (Topic 958): Not-for-Profit Entities: Mergers and Acquisitions
- Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
- Accounting Standards Update No. 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
Table of Contents
- Chapter 1 - Introduction
- Scope
- U.S. GAAP for NFPs
- Grandfathered GAAP Guidance for NFPs, Including Mergers and Acquisitions
- Audited Financial Statements Prepared in Conformity With GAAP
- Fund Accounting and Net Asset Classes
- Appendix A—Understanding Audits, Reviews, and Compilations
- Chapter 2 - General Auditing Considerations
- Overview
- Planning and Other Auditing Considerations
- Audit Planning
- Using the Work of a Specialist
- Scope of Services
- Independence
- Audit Risk
- Planning Materiality
- Qualitative Aspects of Materiality
- Related-Party Transactions
- Errors and Fraud
- Illegal Acts
- Compliance Auditing Under Government Auditing Standards
- Single Audits and Related Considerations
- Processing of Transactions by Service Organizations
- Use of Assertions in Obtaining Audit Evidence
- Understanding the Entity, Its Environment, and Its
Internal Control
- Risk Assessment Procedures
- Analytical Procedures
- Discussion Among the Audit Team
- Understanding of the Entity and Its Environment
- Understanding of Internal Control
- Risk Assessment and the Design of Further
Audit Procedures
- Assessing the Risks of Material Misstatement
- Designing and Performing Further Audit Procedures
- Evaluating Misstatements
- Completing the Audit
- Management Representations
- Going-Concern Considerations
- Appendix A—Consideration of Fraud in a Financial Statement Audit
- Chapter 3 - Basic Financial Statements and General Financial
Reporting Matters
- Introduction
- Statement of Financial Position
- Statement of Activities
- Reporting Expenses, Including in a Statement of Functional Expenses
- Statement of Cash Flows
- Comparative Financial Information
- Reporting of Related Entities, Including Consolidation
- Relationships With Another NFP
- Relationships With a For-Profit Entity
- Consolidation of a Special-Purpose Leasing Entity
- Combined Financial Statements
- Mergers and Acquisitions
- Merger of Not-for-Profit Entities
- Acquisition by a Not-for-Profit Entity
- Collaborative Arrangements
- The Use of Fair Value Measures
- Definition of Fair Value
- Valuation Techniques
- The Fair Value Hierarchy
- Disclosures
- Fair Value Option
- Financial Statement Disclosures Not Considered Elsewhere
- Noncompliance With Donor-Imposed Restrictions
- Risks and Uncertainties
- Appendix A—Flowcharts and Decision Trees
- Chapter 4 - Cash and Cash Equivalents
- Introduction
- Financial Statement Presentation
- Chapter 5 - Contributions Received and Agency Transactions
- Introduction
- Distinguishing Contributions From Other Transactions
- Agency Transactions
- Variance Power
- Financially Interrelated Entities
- Similar Transactions That Are Revocable, Repayable or Reciprocal
- Exchange Transactions
- Recognition Principles for Contributions
- Recognition if a Donor Imposes a Condition
- Recognition if a Donor Imposes a Restriction
- Promises to Give
- Contributed Services
- Gifts in Kind
- Contributed Utilities and Use of Long-Lived Assets
- Contributed Collection Items
- Split-Interest Agreements
- Measurement Principles for Contributions
- Discounting
- Subsequent Measurement
- Financial Statement Presentation
- Illustrative Disclosures
- Auditing
- Chapter 6 - Split-Interest Agreements
- Introduction
- Types of Split-Interest Agreements
- Recognition and Measurement Principles
- Recognition of Revocable Agreements
- Initial Recognition and Measurement of Unconditional Irrevocable Agreements Other Than Pooled Income Funds or Net Income Unitrusts
- Initial Recognition and Measurement of Pooled Income Funds and Net Income Unitrusts
- Recognition and Measurement During the Agreement's Term for Unconditional Irrevocable Agreements Other Than Pooled Income Funds or Net Income Unitrusts
- Recognition and Measurement During the Agreement's Term for Pooled Income Funds and Net Income Unitrusts
- Recognition Upon Termination of Agreement
- Financial Statement Presentation
- Examples of Split-Interest Agreements
- Charitable Lead Trust
- Perpetual Trust Held by a Third Party
- Charitable Remainder Trust
- Charitable Gift Annuity
- Pooled (Life) Income Fund
- Auditing
- Appendix A—Journal Entries
- Chapter 7 - Other Assets
- Introduction
- Inventory
- Prepaid Expenses, Deferred Charges, and Similar Costs
- Collections
- Financial Statement Presentation
- Illustrative Disclosures
- Goodwill
- Auditing
- Inventory
- Collection Items
- Chapter 8 - Investments
- Introduction
- Initial Recognition
- Investment Income
- Valuation Subsequent to Acquisition
- Equity Securities With Readily Determinable Fair Value (Other Than Consolidated Subsidiaries and Equity Securities Reported Under the Equity Method) and All Debt Securities
- Investments That Are Accounted for Under the Equity Method or a Fair Value Election
- Derivative Instruments
- Other Investments
- Fair Value Measurements
- Unrealized and Realized Gains and Losses
- Investment Pools
- Donor-Restricted Endowment Funds
- Financial Statement Presentation
- Accounting for Derivative Instruments and Hedging Activities
- Auditing
- Net Appreciation on Endowment Funds
- Audit Objectives and Procedures
- Chapter 9 - Property, Plant, and Equipment
- Introduction
- Recognition and Measurement Principles
- Contributed Property and Equipment
- Depreciation and Amortization
- Impairment or Disposal of Long-Lived Assets
- Asset Retirement Obligations
- Gains and Losses
- Financial Statement Presentation
- Auditing
- Chapter 10 - Debt and Other Liabilities
- Introduction
- Tax-Exempt Financing and Long-Term Debt
- Current and Deferred Tax Liabilities
- Deferred Revenue
- Refunds Due to and Advances From Third Parties
- Promises to Give
- Annuity Obligations
- Amounts Held for Others Under Agency Transactions
- Revenue Sharing and Other Agreements
- Exit or Disposal Activities
- Guarantees
- Contingencies
- Pension and Other Defined Benefit Postretirement Plan Obligations
- Auditing
- Chapter
11 - Net Assets
- Introduction
- Net Asset Classes
- Permanently Restricted Net Assets
- Temporarily Restricted Net Assets
- Unrestricted Net Assets
- Noncontrolling Interests
- Reclassifications
- Disclosure
- Auditing
- Chapter 12 - Revenues and Receivables From Exchange Transactions
- Introduction
- Revenues
- Recognition, Measurement, and Display
- Chapter 13 - Expenses, Gains, and Losses
- Introduction
- Expenses
- Expense Recognition Issues
- Fundraising Costs
- Financial Aid and Other Reductions in Amounts Charged for Goods and Services
- Advertising Costs
- Start-Up Costs
- Internal Use Computer Software Costs
- Contributions Made
- Gains and Losses
- Reporting Costs Related to Sales of Goods and Services
- Reporting the Cost of Special Events and Other Fundraising Activities
- Investment Revenues, Expenses, Gains, and Losses
- Functional Reporting of Expenses
- Functional Classifications
- Classification of Expenses Related to More Than One Function
- Expenses of Federated Fundraising Entities
- Income Taxes
- Auditing
- Appendix A—Accounting for Joint Activities
- Appendix B—Examples of Applying the Criteria of Purpose, Audience, and Content to Determine Whether a Program or Management and General Activity Has Been Conducted
- Appendix C—Allocation Methods
- Appendix D—Example of Disclosures
- Chapter 14 - Reports of Independent Auditors
- Reports on Financial Statements
- Reports on Comparative Financial Statements
- Unqualified Opinions
- Modified Reports and Departures From Unqualified Opinions
- Going Concern
- Reporting on Supplementary Information
- Bases of Accounting Other Than GAAP
- Reporting on Prescribed Forms
- Reports Required by Government Auditing Standards, the Single Audit Act Amendments of 1996, and OMB Circular A-133
- Chapter 15 - Tax Considerations
- Introduction
- Basis of Exemption
- Federal and State Filing Requirements
- Public Charities and Private Foundations
- Unrelated Business Income
- Auditing
- Chapter 16 - Fund Accounting
- Introduction
- Fund Accounting and External Financial Reporting
- Unrestricted Current (or Unrestricted Operating or General) Funds
- Restricted Current (or Restricted Operating or Specific-Purpose) Funds
- Plant (or Land, Building, and Equipment) Funds
- Loan Funds
- Endowment Funds
- Annuity and Life-Income (Split-Interest) Funds
- Agency (Or Custodian) Funds
- Summary
- Appendix A - Financial Accounting Standards Board Accounting Standards Codification 958, Not-For-Profit Entities, Topic Hierarchy
- Appendix B - Information Sources
- Appendix C - References to AICPA Technical Practice Aids
- Appendix D - Schedule of Changes Made to the Text From the Previous Edition
- Glossary
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Excerpts
Withdrawal of GAAP Hierarchies From the Auditing Standards
In response to the issuance of recent pronouncements by FASB, Governmental Accounting Standards Board, and Federal Accounting Standards Advisory Board to incorporate their respective GAAP hierarchies into their respective authoritative literature, the ASB has withdrawn SAS No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles, from the auditing literature effective September 2009. Similarly, with the release of Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 6, Evaluating Consistency of Financial Statements (AICPA, PCAOB Standards and Related Rules, Auditing Standards), and conforming amendments in January 2008, the PCAOB also removed the GAAP hierarchy from its interim auditing standards applicable to issuers.
ASB Clarity Project
In an effort to make generally accepted auditing standards (GAAS) easier to read, understand, and apply, the ASB launched the Clarity Project. When completed, clarified auditing standards will be issued as one SAS that will supersede all prior SASs. The new audit standards are expected to apply to audits of financial statements for periods beginning no earlier than December 15, 2010. The foundation of the ASB's Clarity Project is the establishment of an objective for each auditing standard. These objectives will better reflect a principlesbased approach to standard-setting. In addition to having objectives, the clarified standards will reflect new drafting conventions that include
| • | adding a definitions section, if relevant, in each standard. |
| • | separating requirements from application and other explanatory material. |
| • | numbering application and other explanatory material paragraphs using anAprefix and presenting them in a separate section (following the requirements section). |
| • | using formatting techniques, such as bulleted lists, to enhance readability. |
| • | adding special considerations relevant to audits of smaller, less complex entities. |
| • | adding special considerations relevant to audits of governmental audits. |
The project also has an international convergence component. The ASB expects that, upon completion of the project, nearly all the requirements of International Standards on Auditing will also be requirements of U.S. GAAS. AICPA Audit and Accounting Guides, as well as other AICPA publications, will be conformed to reflect the new standards resulting from the Clarity Project after issuance and as appropriate based on the effective dates.
Limitations
This guide does not discuss the application of all GAAP and all GAAS that are
relevant to the preparation and audit of financial statements of NFPs. This
guide is directed primarily to those aspects of the preparation and audit of
financial statements that are unique to NFPs or are considered particularly
significant to them.
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