How to Read Nonprofit Financial Statements

275 Pages·2017·38.21 MB·English

by  Klumpp, Lee;Lang, Andrew;Ricciardella, Tammy

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Praise for fi
How to Read Nonpro t Financial Statements
“How to Read Nonprofit Financial Statements: A Practical Guide equips nonprofit board members, the
senior management team, and key stakeholders with the information they need to effectively
understand their organization’s financial statements. Through detailed, line-by-line analysis of each
partofafinancialstatement,theauthorshavecreated apremiersourceofinformationthatiseasyto
understand regardless of professional background.”
—Michael Bauer, Chief Financial Officer, World Wildlife Fund
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H O W T O
R E A D
N O N P R O F I T
F I N A N C I A L
S T A T E M E N T S
A P R A C T (cid:129)I C A L G U I D E
3e
Andrew Lang, CPA|William Eisig, CPA
Lee Klumpp, CPA, CGMA|Tammy Ricciardella, CPA
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Coverdesign: Wiley
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LibraryofCongressCataloging-in-PublicationData:
Names:Lang,AndrewS.,author.|Eisig,William,author.|Klumpp,Lee,author.|Ricciardella,Tammy,author.
Title:Howtoreadnonprofitfinancialstatements:apracticalguide/AndrewLang,WilliamEisig,LeeKlumpp,
TammyRicciardella.
Description:Thirdedition.|Hoboken:Wiley,2017.|RevisededitionofHowtoreadnonprofitfinancial
statements,2010.|Includesindex.
Identifiers:LCCN2016055393(print)|LCCN2016056037(ebook)|ISBN9781118976692(paperback)|
ISBN9781118976715(epdf)|ISBN9781118976708(epub)
Subjects:LCSH:Nonprofitorganizations—UnitedStates—Accounting.|Financialstatements—UnitedStates.
Classification:LCCHF5686.N56L362017(print)|LCCHF5686.N56(ebook)|DDC657/.3—dc23
LCrecordavailableathttps://lccn.loc.gov/2016055393
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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CONTENTS
Preface vii
LearningObjectives ix
Introduction xi
Chapter1 WhyYouNeedtoUnderstandtheUpdatetotheNonprofit
ReportingModel 1
Chapter2 WhyUpdatetheNonprofitReportingModel? 3
Chapter3 HighlightsoftheMajorChangestotheNonprofit
ReportingModel 5
Chapter4 WhatIsthePurposeofFinancialStatements? 11
Chapter5 TypesofFinancialStatements 13
Chapter6 HowtoReadaNonprofitFinancialStatement 15
Chapter7 StatementofFinancialPosition 17
Chapter8 StatementofActivities 19
Chapter9 StatementofCashFlows 23
Chapter10 StatementofFunctionalExpenses 25
Chapter11 FootnotestoFinancialStatements 27
Chapter12 InternalversusExternal(Audited)FinancialStatements 29
Chapter13 TheIndependentAuditor’sReport 31
Chapter14 OtherTypesofAuditorOpinions 35
Chapter15 SupplementalInformation 37
Chapter16 Reserves 39
Chapter17 FinancialStatementExercises 43
Chapter18 ExampleSet1 45
v
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vi Contents
Chapter19 ExampleSet2 101
Chapter20 ExampleSet3 157
Chapter21 FinancialAnalysis 223
Chapter22 Benchmarking 227
Chapter23 IncreasingComplexityinNonprofitFinancialReporting 231
Chapter24 NonprofitsSubjecttoGovernmentAuditingStandardsandaSingle
AuditundertheUniformGuidance 235
Glossary PriortoEffectiveDateofASU2016-14 241
Glossary AmendmentsMadeuponAdoptionofASU2016-14 247
AbouttheAuthors 251
Index 255
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PREFACE
I
fyouarefamiliarwiththeearlierversionsofthispublication,youknowhowvaluablea
resource thisbookistoreaders ofnonprofitfinancial statements. Thisupdatededition
of the publication has been expanded and incorporates even more information that will
make this a must-have resource.
This edition has been updated to reflect the new requirements of the Financial
AccountingStandardsBoard(FASB)AccountingStandardsUpdate(ASU)2016-14,Not-
for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities,
whichwillbeeffective formostnonprofitsforfiscalyears beginningafter December 15,
2017. The provisions of the ASU can be adopted early if a nonprofit chooses to do so.
Theillustrationsinthisbookaredesignedtoprovidereaderswithboththeformatof
nonprofitfinancialstatementsbeforetheadoptionofASU2016-14aswellastheformat
once a nonprofit adopts the provisions of ASU 2016-14. The illustrations highlight best
practicesaswellastherequiredchangesoutlinedintheASU.Theseillustrationsprovide
a great resource for those trying to read and interpret nonprofit financial statements as
well as for those who are responsible for designing and preparing nonprofit financial
statements.
A new chapter has been provided that discusses reserves. This is a challenging topic
and one that many organizations struggle with, and unfortunately there isn’t a single,
definitive answer. There are certain considerations and other factors, however, that an
organization should analyze in making an assessment regarding appropriate reserves.
Thiseditionprovidesanewsectiondiscussinggeneralfinancialanalysisthatprovides
greaterinsightintowhatreadersofnonprofitfinancialstatementsshouldbelookingforto
enable them to satisfy their fiduciary responsibility whether they are a board member,
audit committee member, advisor, or internal CEO or CFO. The section also provides
some of the more common ratios that can be used to obtain information about the
financial condition of a nonprofit organization. This information should be used by all
readers and preparers of nonprofit financial statements to ensure the financial statements
are designed to provide an accurate depiction of the nonprofit organization’s financial
position, activities, and results.
This edition also includes a new chapter on benchmarking to assist nonprofits in
making comparisons to other nonprofit organizations.
A glossary is included that will assist readers in identifying the meaning of specific
terms used in nonprofit accounting and financial statements that can be referred to time
and time again.
vii
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