Non-Profit

Avoid these common not-for-profit financial statement mistakes

At times during audit season, not-for-profit financial statement auditors may feel like medical professionals in January.  They’re extremely busy, and many of the “patients” receive the same diagnosis.

“It’s like flu season,” said Dennis Morrone, CPA, the national partner-in-charge of audit services in Grant Thornton’s not-for-profit and higher education practices. “It seems like as we go through audit season, organizations are dealing with the same kinds of issues.”

Morrone co-presented at a session on common not-for-profit financial statement mistakes last month at the AICPA Not-for-Profit Industry Conference near Washington. The good news is that one of the most common issues leading to not-for-profit restatements — classification of donor gifts — is changing with the implementation of FASB Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958), Presentation of Financial Statements of Not-for-Profit Entities.

The new standard reduces from three to two the number of net asset classes in not-for-profit financial reports. Organizations under legacy GAAP would report gifts as temporarily restricted, permanently restricted, or unrestricted. Under the new standard, they will report net assets with donor restrictions and net assets without donor restrictions.

Although this will require reclassification work during implementation as not-for-profits place assets into two categories rather than three, it should result in less confusion. The misunderstanding of the differences between net assets that were temporarily restricted and permanently restricted has been a problem for financial statement users, board members, and even preparers.

“I think most would agree that it’s much more intuitively understandable, the difference between net assets with donor restrictions and net assets without [donor restrictions],” Morrone said.

Nonetheless, being vigilant about other common not-for-profit financial statement mistakes can help preparers avoid problems for themselves later on. Here are five areas that Morrone and co-presenter John Mattie, CPA, national higher education and not-for-profit practice leader with PwC, urged preparers to consider.

From a July 10, 2018, Journal of Accountancy online article.  Read the complete article.  Or, for specific questions you might have for your non-profit organizations, please reach out to a Dugan & Lopatka professional at info@duganlopatka.com  or (630) 665-4440.

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