Financial Reporting Options: September 3 What Story Are Your - - PowerPoint PPT Presentation

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Financial Reporting Options: September 3 What Story Are Your - - PowerPoint PPT Presentation

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2014 Nonprofit Education and Roundtable Series Financial Reporting Options: September 3 What Story Are Your Financial Reporting Options: What Story Is Financial Reports Telling? Your Financial Reports Telling? September 3, 2014

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Financial Reporting Options: What Story Are Your Financial Reports Telling?

September 3, 2014 Presented by: Bobbie Hales, CPA Matt Krehe, CPA

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Why Are We Covering This?

  • Accounting standards provide flexibility in

how nonprofit financial statements are presented

  • Learn how you can take advantage of the

flexibility to best tell your story

  • Follow the rules - understand what the

presentation requirements are

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Nonprofit Financial Statements

  • Statement of Financial Position
  • Statement of Activities
  • Statement of Functional Expenses
  • Statement of Cash Flows
  • Supplemental Financial Information (not

required)

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Nonprofit Financial Statements

  • The previous statement titles are the most

common

  • The standards allow use of other appropriate

titles for all, except the Statement of Cash Flows (e.g. Balance Sheet, Income Statement)

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

  • The standards require the following to be

reported:

  • Total assets
  • Total liabilities
  • Total net assets
  • Permanently restricted net assets
  • Temporarily restricted net assets
  • Unrestricted net assets
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

Reporting Options:

  • Classified statement not required
  • Investments may be reported as current or

noncurrent assets or both

  • Cash designated for long-term may be

included with investments

  • Unrestricted net asset designations may be

broken out on statement

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

Classified Example

  • If statement is not

classified, liquidity of assets and liabilities required to be disclosed by:

  • Sequence according

to nearness of conversion to cash

  • r use of cash.
  • Disclosure of

liquidity/maturity in the footnotes.

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

Reporting Options:

  • Investments may be reported as

current, noncurrent assets, or both

  • If intended use is long-term – report as

noncurrent assets

  • Provides clarity to user of financial

statements

  • This will help with prevent perception that

the nonprofit has abundant operating assets and doesn’t need additional funding

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

Reporting Options:

  • Cash designated for long-term may

be included with investments.

  • Many nonprofits keep a portion of their

investment portfolio in cash

  • You do not need to classify the cash portion
  • f investment portfolio as cash in your

financials

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

Reporting Options:

  • Unrestricted net asset designations

may be broken out on statement

  • Provide clarity on liquidity of net assets
  • Provide additional information to financial

statement users

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Financial Position

Unrestricted Break-Out Example

  • By breaking out the

unrestricted net assets, the

  • rganization has

shown that the majority of its net assets are tied-up in property and equipment.

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

The standards require the following to be reported:

  • Gross revenues and expenses for ongoing major or

central activities

  • Total change in net assets
  • Change in permanently restricted net assets
  • Change in temporarily restricted net assets
  • Change in unrestricted net assets
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options:

  • Columnar vs. Single Column Presentation
  • Optional reporting of operational

income/loss

  • Expenses may be presented functionally or

naturally, or hybrid

  • Revenue and expenses from special events

can be reported net or gross

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Unrestricted Temporarily Restricted Permanently Restricted Total

REVENUES, SUPPORT AND INCOME: Government service contracts 13,210,000 $ 13,210,000 $ Fees for service activities and progra 3,248,711 3,248,711 Foundation grants and contributions 1,000,000 3,990,480 $ 38,948 $ 5,029,428 Investment income 2,726,416 2,726,416 Net assets released from restrictions 6,415,526 (6,415,526) Total revenues 23,874,237 301,370 38,948 24,214,555 EXPENSES: Program services: Adult services 12,795,452 12,795,452 Children services 5,454,749 5,454,749 Total program services 18,250,201 18,250,201 Supporting services: General and administrative 4,209,607 4,209,607 Fundraising expenses 72,542 72,542 Total supporting services 4,282,149 4,282,149 Total expenses 22,532,350 22,532,350 INCREASE IN NET ASSETS 1,341,887 301,370 38,948 1,682,205 NET ASSETS, Beginning of Year 1,630,889 17,415,011 37,518,281 56,453,929 NET ASSETS, End of Year 2,972,776 $ 17,716,381 $ 37,557,229 $ 58,136,134 $

HUMAN SERVICES, INC.

STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2013 UNRESTRICTED NET ASSETS: REVENUES: Government service contracts 13,210,000 $ Fees for service activities and programs 3,248,711 Foundation grants and contributions 1,000,000 Net assets released from restrictions 6,415,526 Total revenues 23,874,237 EXPENSES: Program services: Adult services 12,795,452 Children services 5,454,749 Total program services 18,250,201 Supporting services: General and administrative 4,209,607 Fundraising expenses 72,542 Total supporting services 4,282,149 Total expenses 22,532,350 INCREASE IN UNRESTRICTED NET ASSETS 1,341,887 TEMPORARILY RESTRICTED NET ASSETS: Foundation grants and contributions 3,990,480 $ Investment income 2,726,416 Net assets released from restrictions (6,415,526) INCREASE IN TEMPORARILY RESTRICTED NET ASSETS 301,370 PERMANENTLY RESTRICTED NET ASSETS: Foundation grants and contributions 38,948 INCREASE IN NET ASSETS 1,682,205 NET ASSETS, Beginning of Year 56,453,929 NET ASSETS, End of Year 58,136,134 $

HUMAN SERVICS, INC.

STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2013

Columnar vs. Single Column Presentation

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options:

  • Optional reporting of operational

income/loss

  • Benefits:
  • Provides for a better year-to-year comparison of

results

  • Can be used to indicate level of reliance on

investment income

  • Eliminates impact of items that cannot be

budgeted, one-time items, or that are out of the

  • rganization’s control
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Optional reporting of operational income/loss

No separate “operational” reporting With “operational” reporting

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options:

  • Optional reporting of operational

income/loss

  • Some membership organizations or other

charitable nonprofits rely on investment income to subsidize dues or contribution levels

  • Organize your financial statements to point this
  • ut
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Membership organization showing reliance on investment income

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options:

  • Optional reporting of operational income/loss

Be careful – restrictions exist

  • Accounting standards prohibit these items from

being separated from operations:

  • An impairment loss recognized for a long-lived asset to be held

and used

  • Any gain or loss recognized on the sale of a long-lived asset (or

disposal group) if that asset (or group) is not of the nonprofit

  • Costs associated with an exit or disposal activity that does not

involve a discontinued operation

  • Amortization expenses and impairment losses recognized on

intangible assets including goodwill

  • It may still be appropriate to show them as a

separate line (see example to follow)

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options

  • Example of

gain/loss shown separately, but not separate from

  • perations
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options:

  • Expenses may be presented functionally or

naturally, or hybrid.

  • Most readers of your financials will look to the

financials first and may not even look at footnotes

  • This allows you to present what you think is most

relevant or important to your financial statement readers

* Reminder – functional presentation is required, so if not on the face of the statement, footnote disclosure is required

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Functional Hybrid Natural

Expense Presentation

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Activities

Reporting Options:

  • Revenue & Expenses from special events can

be reported net or gross

Treatment of Special Event Expenses

  • If activity or event is incidental or

peripheral, direct expenses of activity may be presented as contra-revenue on statement of activities Examples: Annual banquet, annual fundraising golf tournament

  • Special event expenses do need to be

reported on a statement of functional expenses

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Functional Expenses

  • Reports information about expenses by their

natural and functional classification

  • Optional for most nonprofits
  • Required for “Voluntary Health and Welfare

Organizations” (VHWs)

  • VHW is any organization formed for the purpose
  • f performing voluntary services for benefit of

various segments of society

  • Derives most revenue from “voluntary”

contributions (excluding government entities) from general public, to be used for general or specific purposes connected with health, welfare, or community services

 Presumed to be publicly supported if contributions are 20 – 30% or more of total revenue and support, including both cash and in-kind contributions, but excluding government support

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Functional Expenses

  • Advantages:
  • Provides transparency for how the organization

spends its resources

  • Great management tool to identify inefficiencies or

evaluate effectiveness of programs

  • Disadvantages:
  • Could subject organization to additional scrutiny.
  • Time consuming to prepare
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Functional Expenses

Reporting Options:

  • How disaggregated should you report?
  • Standards do not say how much detail to show

consider what is meaningful to financial users

  • Although may be useful internally to report

programs at detail level, aggregating programs with the basic purpose in common will be more useful to those outside organization

  • Best functional categories are those derived

from the nonprofit’s mission and goals

  • Similarly, a larger number of natural line items

may be more useful to internal financial statement users than general public

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Functional Expenses

Reporting Options:

  • Example with few natural categories
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Functional Expenses

  • Example with

many natural categories

Reporting Options:

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Functional Expenses

Example of items to combine

Consider combining natural categories.

Personnel Occupancy Outside services Equipment expense

  • Misc. expense
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Statement of Cash Flows

  • Not a lot of flexibility in how items are

reported.

  • Nonprofits have option of using the direct or

indirect method.

  • Most are currently using the indirect method.
  • FASB is leaning toward requiring all nonprofits to

begin using the direct method.

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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

Supplemental Financial Information

  • Supplemental financial information is not

required

  • Provides nonprofits opportunity to report

information they feel is useful to financial statement readers

  • Examples include:
  • Consolidating financial statements
  • Stand-alone parent financial statements
  • Departmental financial statements
  • Supplemental schedule of expenses
  • Historical summaries of financial data
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2014 Nonprofit Education and Roundtable Series September 3 Financial Reporting Options: What Story Is Your Financial Reports Telling? Presented by: Bobbie Hales, CPA Matt Krehe, CPA

QUESTIONS?

  • Bobbie Hales
  • bobbie@gilbertcpa.com
  • Matt Krehe
  • mkrehe@gilbertcpa.com

Gilbert Associates, Inc. CPAs and Advisors (916) 646-6464 www.gilbertcpa.com