A financial statement audit is bound to produce questions on financial statement reporting, and many are matters that are better addressed before the start of the audit. Questions addressed during the reporting year can save not-for-profit organizations a lot of time during their next audit and could eliminate potential control deficiencies reported as a result of addressing these prior to the audit. The following are among the top questions we routinely hear from our clients.
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Frequently Asked Questions about Not-for-Profit Audits
1. NOT-FOR-PROFIT
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member of Kreston International Limited, a global network of independent accounting firms.
Learn more at www.mhmcpa.com
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A financial statement audit is bound to produce questions on financial statement reporting, and many are
matters that are better addressed before the start of the audit. Questions addressed during the reporting
year can save not-for-profit organizations a lot of time during their next audit and could eliminate potential
control deficiencies reported as a result of addressing these prior to the audit. The following are among the
top questions we routinely hear from our clients.
FrequentlyAskedQuestionsaboutNot-For-ProfitAudits
How Should A Not-For-Profit Record a
Certificate of Deposit?
Certificates of Deposits (CDs) are not considered
investments under Accounting Standards Codification
Topic 320, Investments—Debt and Equity Securities
(ASC Topic 320) and are not considered a fair value item
under ASC Topic 820, Fair Value Measurements and
Disclosures. CDs should be reported as part of cash and
cash equivalents at cost plus accrued interest if less than
90 days duration at the purchase date, and on its own line
in the financial statements if the duration at the time of
purchase is greater than 90 days.
Should Not-For-Profits Segregate Investments in
Split-Interest Agreements on the Balance Sheet?
Most states don’t regulate the instruments in split-interest
agreements, but it’s possible that some states require
organizations to separate investments in split interest
funds. In practice, most organizations commingle these
donations in their investment pool until the death of the
donor, even if the organizations segregate investments
in split-interest agreements on their balance sheet. The
notes to the financial statements should include the
appropriate disclosures on the split interest agreements.
If a Board Restricts Earnings on Endowment
Funds, Do Those Resources Get Accounted for
in Temporarily Restricted Assets?
No. Only donors or local laws determine whether funds
are classified as restricted net assets. The temporarily
restricted assets designation can be confusing. So, too,
has been the treatment of funds that are not restricted
but have board restrictions. Board restricted funds
should be accounted for as board designated funds and
reported under the unrestricted net assets caption in
the financial statements. Not-for-profits will have clearer
guidance on both of these issues with the new not-for-
profit financial statement standard, which clarifies asset
classes as assets with donor restrictions and assets
without donor restrictions. Board-restricted funds will
be classified as assets without donor restrictions and
will require enhanced disclosures about the amounts
and purposes of the governing board designations and
appropriations.
If a Prior Year Summarized Data Is Reported,
What Should Be Done Relative to Prior Period
Footnotes?
It is highly recommended that not-for-profit organizations
report comparative financial statements each year.
Summarizing prior period data is allowed so long as it
contains the proper titles within the statements. In either
case, comparative footnotes should be presented for
all required disclosures under U.S. generally accepted
accounting principles (GAAP).
3. NOT-FOR-PROFIT
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member of Kreston International Limited, a global network of independent accounting firms.
Learn more at www.mhmcpa.com
Our roots run deep
Does a Not-For-Profit Qualify to Use the Equity
Method of Accounting?
A not-for-profit may encounter the equity method of
accounting question if it holds an equity investment in a
for-profit company. The not-for-profit organization should
first determine if an election was made to report such
interests at fair value in accordance with the fair value
option. If the organization has not made the election
to report these type of investments at fair value, for
example the not-for-profit accounts for other investments
at market value, and if the arrangement meets the
criteria outlined in ASC Topic 323, Investments- Equity
Method and Joint Ventures, the organization would follow
the equity method of accounting.
For More Questions
If you have any additional comments, questions or
concerns, contact us.
Related Reading
• Spring Cleaning: What Not-for-Profits Should
Annually Review to Manage Their Compliance
Requirements
• Compliance Checklist: How Not-for-Profits Can
Meet Their IRS Filing Requirement
• Presenting the New Not-for-Profit Financial
Statement