Three New Technical Practice Aids for Nonprofits

From the Thompson Tax and Accounting e-newsletter comes the news of three new technical practice aids for nonprofits. You can download a PDF of them here. The highlights:

• TIS section 6140.20 discusses circumstances in which not-for-profit organizations with contribution revenue could have minimal or no fund-raising expense. It describes situations in which this would occur, thereby expanding the relevant guidance in the AICPA's Audit and Accounting Guide, Not-for-Profit Organizations.
• TIS section 6140.21 addresses the accounting treatment of professional fund-raiser charges. It states that these charges should be reported "gross," i.e., as fund-raising expenses, and should not be netted with contribution revenue.
• TIS section 6140.22 describes how an NPO may act as an agent or intermediary for a donor that has stipulated that certain resources be transferred to another NPO. It states that any compensation (including administrative fees) retained by the agent/intermediary NPO should be reported as fund-raising expense by the NPO that receives the contribution. The receiving NPO also reports the original amount contributed by the donor as contribution revenue.

OMB Revises Circular A-133

From The PPC Guides' Newsletter

OMB Revises Circular A-133 and AICPA Issues Related Auditing Interpretation. This has to do with the new updated terminology of internal controls, among other things, based upon the AICPA's guidance for a stricter look at an organizations internal controls.

SAS 61 & 114, Communication with Audit Committees

I have mentioned the PPC guides (this one and this one especially) as valuable resources for any nonprofit's finance and accounting personnel. Their e-newsletters are also very good and I picked up this tid bit about a replacement SAS (Statement of Accounting Standards) that governs communication between the auditor and "those charged with governance" of the organization. The link in the title will take you too the article, here is an excerpt:

SAS No. 114, The Auditor's Communication With Those Charged With Governance, was recently issued by the ASB. The new SAS supersedes SAS No. 61, Communication with Audit Committees, and is effective for audits of financial statements for periods beginning on or after December 15, 2006 (generally, 2007 calendar year-end audits.)

The new SAS establishes standards for the matters required to be communicated by the auditor, the form and timing of that communication, and to whom the matters should be communicated. These new standards apply to all entities regardless of size, ownership, or organizational structure.

Donation Transactions

There were some questions at the latest boot camp on the specific journal entries for donations to be auctioned off or re-sold. From the great PPC Guides, I recommend them to any nonprofit finance professional, an excerpt:

"Organizations may receive contributions of gifts-in-kind to be used for fund-raising purposes. A common example is where an organization receives tickets, gift certificates, or merchandise from donors to be sold to others during an auction. An organization should recognize the donated item to be used for fund-raising purposes as a contribution and record it at its estimated fair value. When the item is subsequently sold (such as at auction), any difference between the item'’s initially estimated fair value and the amount ultimately received should be recognized as an adjustment to the original contribution amount.

For all practical purposes, the initial estimation may not be that important - the eventual contribution amount that is recognized will be what someone was willing to pay for the donated item. Organizations should use their best estimates when initially valuing the donated items and adjust the amounts later when the actual auction takes place. As a practical matter, the time period between the donation of items for an auction and the actual auction may be short. Accordingly, some organizations may wait to record the items until they are actually sold. That would not be appropriate, however, if the items were received before year-end and the auction was held after year-end.

Example: An organization is given a piece of jewelry valued at $3,000 to be auctioned off to the highest bidder at the organization's annual fund-raiser. The journal entry to record the initial gift-in-kind contribution is as follows:
Debit - Asset $ 3,000
Credit - Contribution revenue $ 3,000

At the fund-raiser, an individual purchases the jewelry for $5,000. The journal entry to adjust for the sale is as follows:
Debit - Cash $ 5,000
Credit - Asset $ 3,000
Credit - Contribution revenue $2,000

If the jewelry sold at auction for only $1,000, the journal entry to record the sale would then be as follows:
Debit - Cash $ 1,000
Debit - Contribution revenue $2,000
Credit - Asset $ 3,000"

Hope that helps! And you should check out PPC's guide to Expenses as well.