Not-for-Profit Organizations Accounting Issues and Risks 2008: Strengthening Financial Management and Reporting - Financial Reporting Alert

This Financial Reporting Alert is intended to be used by members of an organization’s financial management and audit committee to identify and understand current accounting and regulatory developments affecting the organization’s financial reporting. This alert is intended to help you achieve a more robust understanding of the economic and business environment in which your organization operates and is also an important tool in helping you identify the significant risks that may result in the material misstatement of your organization’s financial statements.

Specifically, in this alert you will find information on recent issues that affect your organization such as:

• The state of the economy and its affect on not-for-profit organizations
• IRS activities that impact exempt organizations
• The Hierarchy of Generally Accepted Accounting Principles (FASB No. 162)
• Disclosures about Derivative Instruments and Hedging Activities (FASB No. 161)

• Business Combinations (FASB Nos. 160 and 141(R))
• Fair Value Accounting Standards (FASB Nos. 157 and 159)
• Accounting for Defined Benefit Pension and Other Postretirement Pension Plans (FASB No. 158)
• Income Tax Accruals and Deferred Income Taxes under FIN 48
• Audit and attestation developments affecting your organization’s financial statement audit

You will also find information on emerging issues such as:

• Convergence with International Financial Reporting Standards
• The FASB Codification Project
• The FASB exposure draft on UPMIFA

This document has not been approved, disapproved, or otherwise acted on by a senior technical committee of the AICPA.

029207

Understanding Your Organization and Its Environment to Assess Risks

As a member of an organization’s financial management or audit committee, it is important for you to have a sufficient understanding of the organization and the current environment in which it operates to perform not only an adequate risk assessment, but also an opportunity assessment for the organization. A proper risk assessment will assist you in understanding the risk that your organization’s financial statements may be misstated. An understanding of the organization and the environment in which it operates may consist of an understanding of the following aspects:

• Current economic conditions
• Nature of the industry in which your organization operates and how it is changing
• Industry, regulatory, and other external factors
• Business objectives and strategies and related risks
• Current, past, and projected financial performance of the organization
• Competitors’ financial performance
• Internal control within your organization, which includes the selection and application of accounting policies

Your organization’s financial statements will be subject to specific risks of material misstatement arising from the nature of the business, the degree of regulation, or other external forces affecting the business (for example, political, economic, social, technical, and competitive forces).

029207