audit
5 ways nonprofits can prepare for an audit
No not-for-profit looks forward to annual audits. But regular maintenance and preparation specific to an impending audit can make the process less disruptive. We recommend taking the following steps. 1. Reconcile routinely You shouldn’t wait until audit time to reconcile accounts — for example, cash, receivables, pledges, payables, accruals and revenues. Reconcile general ledger account balances to supporting schedules (bank reconciliation, receivables and payable aging) monthly or at least quarterly. And don’t forget to reconcile database information provided and maintained by nonaccounting departments, such as contributions, events revenue, registration revenue and sponsorships. 2. Prepare supporting documentation Collect all supporting documentation
Do you know the new accounting rules for gifts in kind?
If your not-for-profit organization accepts contributions of nonfinancial assets, such as land, services and supplies, you should know about Financial Accounting Standards Board (FASB) rules approved last year. Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets is intended to increase transparency around gifts in kind. Inflated values The updated rules were generated in response to concerns about U.S. wholesale market prices being used to determine the value of donated pharmaceuticals that can’t legally be sold in the United States. A donor, for example, could contribute such drugs for use only
Gifts in kind: New reporting requirements for nonprofits
On September 17, the Financial Accounting Standards Board (FASB) issued an accounting rule that will provide more detailed information about noncash contributions charities and other not-for-profit organizations receive known as “gifts in kind.” Here are the details. Need for change Gifts in kind can play an important role in ensuring a charity functions effectively. They may include various goods, services and time. Examples of contributed nonfinancial assets include: Fixed assets, such as land, buildings and equipment, The use of fixed assets or utilities, Materials and supplies, such as food, clothing or pharmaceuticals, Intangible assets, and Recognized contributed services. Increased scrutiny by
External audits offer many benefits to nonprofits
Your nonprofit organization may be required to hire an independent outside CPA to audit its books, depending on its annual gross receipts and other factors. Even when external audits aren’t mandated, however, they’re often recommended. These audits can provide assurance to donors and other stakeholders that your organization is operating with integrity and within acceptable accounting guidelines. Internal audits Most nonprofits conduct internal audits on a regular basis, perhaps quarterly or annually. These audits are typically performed by a board member or a member of the organization’s staff. The objective is to review the organization’s financial statements, accounting policies and
Adjusting your financial statements for COVID-19 tax relief measures
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, contains several tax-related provisions for businesses hit by the novel coronavirus (COVID-19) crisis. Those provisions will also have an impact on financial reporting. Companies that issue financial statements under U.S. Generally Accepted Accounting Principles (GAAP) are required to follow Accounting Standards Codification (ASC) Topic 740, Income Taxes. This complicated guidance requires companies to report the effects of new tax laws in the period they’re enacted. As a result, companies — especially those that issue quarterly financial statements or that have fiscal year ends in the coming
Auditing grant compliance
Has your organization received any public or private grants to fund its growth? Grants sometimes require an independent audit by a qualified accounting firm. Here’s what grant recipients should know to help facilitate matters and ensure compliance at all levels. Federal compliance Federal awards require compliance with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (also known as 2 CFR Part 200). This guidance requires any entity that expends $750,000 or more of federal assistance received for its operations to undergo a “single audit,” which is a rigorous, organizationwide examination. To provide grant recipients with
Measuring “fair value” for financial reporting purposes
The standard for valuing certain assets and liabilities under U.S. Generally Accepted Accounting Principles (GAAP) is “fair value.” This differs from other valuation standards that may apply when valuing a security or business interest in a litigation or mergers and acquisitions (M&A) setting. FASB guidance The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures , in 2006. It defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The
Close-up on financial statements
There are three types of financial statements under U.S. Generally Accepted Accounting Principles (GAAP). Each one reveals different, but equally important, information about your company’s financial performance. And, together, they can be analyzed to help owners, management, lenders and investors make informed business decisions. Profit or loss The income statement shows revenue and expenses over the accounting period. A commonly used term when discussing income statements is “net income,“ which is the income remaining after all expenses (including taxes) have been paid. It’s also important to check out the company’s “gross profit.“ This is the income earned after subtracting
