Non-Profit Accountants and Common Disclosures

non-profit accountantWhen accounting for a non-profit’s financial expenditures, a non-profit accountant must disclose how the non-profit spends its money, as well as from where it receives money (AKA, its sources of income). A non-profit should also clearly explain how it determines what it chooses to disclose. For your reference, below we split the most common disclosures that nonprofits make into three types. Remember that when dealing with the IRS, you can avoid scrutiny by proactively explaining your disclosure methods.

Accounting Methods

Non-profit accountants must disclose the way that they account. This includes:

  • A statement explaining the intended purpose of the non-profit organization and its sources of income
  • A listing of the main accounting policies in place including but not limited to:
    • The non-profit’s income-tax status.
    • Accounting methods as they pertain to accrual, cash basis, and modified-cash basis financial statements.
    • What the non-profit classifies as cash equivalents.
    • The fair value of the non-profit’s investments.
    • Capitalized fixed assets and their depreciation period.
    • How the non-profit recognizes contributions and grants as revenue in its accounting policy.
    • The nature of in-kind contributions provided to the non-profit and how they are recognized in its accounting policy.
    • The existence of estimates.
    • How the organization spends money (expenses) to accomplish its goals.

Income

Non-profits can accrue income from a variety of sources, so long as the non-profit remains expressly not-for-profit. Many non-profits commonly disclose income from the sources of income that help them sustain their financial position. If you are unsure of what might qualify as income, or otherwise questioning what you think will be necessary to disclose, contact our experienced non-profit accountants at Gurman & Company PLLC.

  • Investments
    • Including the type of investment (bond, stock share, corporate obligation, etc.)
    • The investment disclosure should furthermore differentiate between investment income, such as interest and dividends, and gains or losses from investments which increase or decrease the fair value.
  • Income from leases/subleases
    • Schedule of lease/sublease receipts to be received for the next 5 years and the total amount thereafter.
    • Total rental income recognized during current year.
  • Pledges/contributions
    • The period during which pledges/contributions expect to be collected in the following:
      • Less than one year.
      • One-to-five years.
      • More than five years.
      • Allowance for uncollectible amounts.
      • Any discounts applied to long-term contributions.
      • Pledges conditional on a future event, which are not recognized in your financial statements.
      • Temporarily restricted holdings and releases.
      • Nature of temporarily restricted net asset remaining at year-end.
      • Net assets released from restriction during the year.
      • Balances should be listed by the type of restriction, not necessarily by their funding source.

Expenses

Non-profits obviously incur expenses as they do the work to fulfill their intended purposes. Non-Profit accountants must be aware of the ways that nonprofits spend their money and document those ways with precise care. Expenses can be grouped into different categories depending on their intended purpose and recipient.

  • Functional expenses
    • Non-profits are required to disclose their expenses by function, which includes the different programs that the non-profit runs as well as supporting services, such as management and general costs, membership development, and fundraising.
    • Health and welfare organizations are required to report a statement of functional expenses, which shows the natural expenses (i.e., salaries, rent, depreciation, etc.) for each of the functions (i.e., program and supporting services).
  • Contingencies
    • Possible losses that the non-profit may experience from litigation, audit expenses, etc.
    • For example there is the potential that a government/private funder could examine your non-profit’s audit and nullify the use of their funds for a certain expense.
  • Fixed Assets
    • List fixed assets by type (furniture, leasehold improvements, computers, etc.).
    • Total accumulated depreciation.
    • Total depreciation and amortization expense for this current year.
  • Joint Costs
    • Costs that can be allocated to fundraising and program services.
    • Total joint costs allocated and the amount allocated to each category
    • Types of activities the resulted in joint costs.
    • Methodology used to calculate joint costs.
  • Leases
    • Separately list operating leases and capital leases.
    • Description of the terms of the leases at year end.
    • Schedule of rental payments for each of the next five years and total amount thereafter.
  • Notes Payable
    • List details and terms of any notes payable still held at year end.
    • Include maturities for each of the next five years and remaining balance thereafter.
    • Notes provided by related parties.
  • Related Parties
    • Describe transactions entered into with related parties (related reorganizations, board members, senior management, significant funders, etc).
    • State any dollar amount owed to or from the related parties at year end.
    • This is a paramount footnote which requires deliberate and careful specificity.
  • Retirement Plans
    • If the nonprofit sponsors a defined-benefit retirement plan there are remarkably more disclosures required of your organization, please contact your auditor for additional details.
    • Who is eligible to participate in the retirement plans offered.
    • Cost incurred by nonprofit in contributing to employee retirement plans.

When you’re considering how your nonprofit organization might properly disclose its financial records this year, make sure you consult with a non-profit accountants you can trust. Our staff at Gurman & Company PLLC have extensive knowledge and experience in nonprofit accounting, and are ready to listen to your needs. We are ready to provide your organization with the appropriate assistance.