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  • 1. financial reporting 2008 National Leadership Conference
  • 2. Association Finances
    • Essential Financial Concepts & Terminology
    • Association Financial Statements
    • Financial Analysis & Benchmarking
    • The Importance of Internal Controls
    • Operating Policies in Sarbox World
  • 3. Essential Financial Concepts & Terminology
    • What is Finance?
      • Finance is the economic activity of an organization.
    • What is Accounting?
      • Recording of financial activity
      • Classifying the financial activity
      • Reporting upon the financial activity
  • 4. Generally Accepted Accounting Principles
    • Materiality
    • Business Entity
    • Objectivity
    • Money Management
    • Cost principle
    • Consistency
    • Going concern
    • Conservatism
    • Full disclosure
    • Matching principle
  • 5. What Accounting Looks At
    • Assets
    • Liabilities
    • Equity
    • Income
    • Expense
  • 6. Equity
    • Equity = Net worth of an organization.
    • Formula
      • What you own LESS what you owe = what you’re worth
    • What is the net asset figure?
      • Total Assets $1,000,000
      • Total, Liabilities 970,000
      • Net Assets $
  • 7. Net Asset Categories
    • Unrestricted Net Assets
      • Including board designated funds
      • Money can be used for any legal purpose
    • Temporarily Restricted Net Assets
      • Money whose use is limited by time or purpose
    • Permanently Restricted Net Assets.
      • Including endowment funds
      • The principal can never be spent
  • 8. Accounting Equation
    • Assets – Liabilities = Equity
    • Most always shown as:
      • Assets = Liabilities + Equity
  • 9. Categories
    • Income = Revenue
      • Dues income
      • Contribution income
      • Interest income
      • Exhibit income
    • Expenses
      • Employee salaries & benefits
      • Meeting space, meals and AV
      • Printing, postage, etc
      • Travel
  • 10. Accounting & Chart of Accounts
    • Each individual item in each category (assets, liabilities, equity, revenue and expenses) is an “account”:
      • An account is the smallest subcategory in which financial activity is tracked
    • A “Chart of Accounts” is simply a listing of all accounts an organization uses.
  • 11. System of Accounting
    • Method or system used is generally depends on size and complexity or organization.
    • Orgs with budgets less than $1M can often create acceptable and accurate financial statements using simple system called “cash basis” accounting.
      • Transactions only recorded when cash moves. Income is treated as earned when money received; expenses counted when money is spent.
    • Larger, more complex organizations use the “accrual basis” to make sure that financial reports correctly reflect financial activity and position.
      • System that tracks when income is earned and when expenses are incurred.
  • 12. Accrual Method of Accounting
    • Accounts Receivable
    • Prepaid Expense
    • Accounts Payable
    • Unearned Revenue
    • Depreciation
    • Amortization
    • Accumulated Depreciation
  • 13. Grouping of Accounts
    • Current Assets
    • Fixed Assets
    • Current Liabilities
    • Long Term Liabilities
  • 14. Association Financial Statements
    • Statement of Financial Position (or Balance Sheet)
    • – Shows what the assets, liabilities and net assets of association were at a given point in time.
  • 15. Association Financial Reports
    • Statement of Activities (Statement of Revenue and Expenses)
    • – Shows what comprised the income and expenses of the operation for a given period of time, and whether there was a gain or loss in net assets.
  • 16. Association Financial Reports
    • Statement of Cash Flows
      • – Tells where the organization got the funds it used and what it spent them on. Old format had its analysis based on the chapters in assets and liabilities; the new format focuses mainly on where cash came from and how it was used.
  • 17. How to Read a Statement
    • Always check the heading first. They will tell you.
      • What unit, organization or group or organizations is reported on.
      • What type of statement is being provided.
      • What is the relevant period of time (Statement of Activities, Statement of Cash Flows) or date (Statement of Financial Position).
  • 18. How to Read a Statement
    • d. What comparable information is being provided:
      • For a Statement of Financial Position, usually the org’s position at the same time in the prior year.
      • For a Statement of Activities or Cash Flows, usually the same period in the prior years
      • Budgeted figures or percentages may be provided on Statements of Activities
  • 19. How to Read a Statement
    • 2. Scan the page as a whole – most statements are shown complete on one page. Once you understand major Divisions of the statement, you can work more confidently on the detail in each section.
  • 20. Statement of Financial Position
    • Almost always broken into two major categories – assets on top and liabilities and net assets on bottom.
      • Assets are broken down into subcategories:
        • Current assets
        • Fixed assets
        • Other assets
      • It is called a balance sheet because assets must equal (balance with) liabilities plus net assets.
  • 21. Statement of Financial Position
    • What kinds of things to look for:
      • Have the current assets increased or decreased?
      • Any major fixed assets purchased or sold?
      • Any new debt taken on or old debt paid off?
      • Any new unusual liabilities show up?
      • If statement has more than one time period, how has the org changed during that time?
  • 22. Statement of Activities
    • Almost always broken into two major categories – income (on top) and expenses underneath.
      • Income will be shown by type, and then totaled.
      • Expenses will be shown by type, and then totaled.
      • Sometimes the Change in New Assets will be shown as the “bottom line”.
  • 23. Statement of Activities
    • What kinds of things to look for:
      • Has the gross income gone up or down?
      • How have the key sources of income changed?
      • Are total expenses up or down? Which individual expenses have changed significantly?
      • How does the change in expenses relate to the change in income?
      • How does this period’s Change in Net Assets compare to that of prior periods?
  • 24. Statement of Cash Flows
    • Divided into Three Parts:
      • Cash Flows from Operating Activities
      • Cash Flows from Investing Activities
      • Cash Flows from Financing Activities
  • 25. Notes to Financial Statements
    • Notes are important in helping a reader understand an organization’s financial situation.
    • Notes will highlight significant accounting policies to start with and then go to detailed reports on matters of significance.
    • Major acquisitions or changes in operations are highlighted as are pension funding requirements, pending law suits and other significant information.
  • 26. Financial Analysis & Benchmarking
    • Financial Analysis
      • What is state of org’s key indicators? (critical revenue streams, number of members, registrants for key meetings, etc.)
      • What are the most important financial changes you should be made aware of? Which are positive and which negative?
      • Are there related items whose trends should be considered?
  • 27. Financial Analysis
    • Comparative Analysis
      • Figures be provided for two different time periods for the same financial statements
      • All line items be calculated exactly the same.
      • Best offered for similar time periods – This month this year to this month last year.
    • Common Size Statements
      • Figures presented are calculated as a percentage of some common figure.
      • Presented in combination with regular financial statements.
      • Using this information, it is easy to identify trends.
  • 28. Internal Controls
    • Help safeguard assets from fraud, misuse and waste.
    • Promote operational efficiency and effective implementation of management’s intentions.
    • Identify and correct errors or irregularities on a timely basis, as a part of normal operations.
  • 29. Important Things Nonprofits Should Consider in Era of SOX
    • Org must have and enforce both whistle-blower and document retention policies.
    • Create an audit committee.
    • Have CEO or CFO publicly attest to accuracy, completeness and fairness of financial statements.
    • Publicly disclose you have adopted and follow a code of ethics for Board.
    • Consider very carefully all transactions between org and any “insider”.
  • 30. Important Things Nonprofits Should Consider in Era of SOX
    • Prohibit loans to officers, employees and trustees if not already in Bylaws.
    • Instruct attorney to report all wrongdoing anywhere in the org to senior management of Board.
    • Have auditor issue report on your internal controls and make public.
    • Inquire of your outside auditor whether they have adopted the requirements of SOX.

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