Learn About Not-For-Profit Financial Statement Mistakes

During an audit season, not-for-profit financial statement mistakes may cost you. The auditors will feel similar to medical professionals for not-for-profit financial statements. They are busy and there are several patients receiving the same diagnosis.

As per CPA Dennis Morrone, it is similar to a flu season. He is the federal partner-in-charge of an audit service in Thornton Grant. The current standards decrease from 3 to 2 the number of asset classes in not-for-profit financial statements. Companies working under GAAP legacy would report temporary restriction, unrestricted or permanently limit on gifts. New standards allow you to report total assets with the restrictions of donor and without the restrictions of a donor. 

It may need reclassification work during an implementation procedure because the not-for-profit assets are divided into two categories instead of three. It can be confusing for anyone. The misunderstanding of alterations between total assets that were restricted temporarily and permanently can be a problem for tax preparers, users of financial statements and board members. 

Several people would agree that it is intuitively understandable for anyone to find the difference between assets with restrictions and without restrictions.  

If you are vigilant about not-for-profit common financial statement mistakes, it will be easy for you to avoid mistakes and help other preparers. Here are some areas and you must focus on these areas.  

Recognition of Revenue

Typical mistakes in revenue recognition may include:

• Identifying particular types of contributions and grants
• Identifying earnings on your perpetual trusts just like the component of revenue contribution  
• Not identifying the long-term inherent input, below the agreement of market lease
• Not identifying at fair value the proceeds of contributed services and particular gifts, such as the announcement by public service 

It is essential to recognize all mistakes and avoid irrelevant things. The value of PSA (public service announcement) can appear as an aberration because the gifts are reported. As per Morrone, you have to clear everything and put a special note on your statement for functional expenses.

He said that an organization should embrace this strategy because distillations of PSAs may appear on the statement. Keep it in mind that functional expenses are essential to aberrations that can skew revenues and costs for a reporting period.  

You may not be able to recur a particular amount. You have to explain the nature of revenue and expenses in your financial statements.

Compare Disclosure of Compensation with 990

The 990 form of the IRS provides information not-for-profits that are available for the public. The data of the financial statement may be presented differently. The information in all documents must be consistent instead of contradictory.

You may still find several hones between reported content in financial statements and 990 form. You should not ignore or underestimate the disclosures that will get out in public. The 990 form must have similar information available in your business or personal financial statements.

Numbering and Ordering of Footnotes

Several financial statements contain footnotes, and these notes may carry over each year. You have to add new footnotes, so it is essential to delete irrelevant footnotes while adding new. The accountant or tax preparer must ensure changes in the number of notes along with references in the financial statements.

Mattie and Morrone are encouraging tax preparers to consider the order of their footnotes carefully. It will be good to arrange your footnotes for a logical progression in financial statements.

Fund Performance Endowment Reporting

Morrone reviews financial statements to check the endowment performance of disclosures. The logically correlated endowment performance disclosure or unmatched disclosures with an aggregate performance of investment are recognized in the activity statement. Preparer has to carefully review all things to avoid the wrong categorization.

Input Capitalizing Interest on the Cost of Construction

In particular instances, Not-for-profit Financial Statement Mistakes may increase your trouble. You may miss out the probability to attribute capitalized interest on construction projects with internal funding. 

There may be a difference in the material in the progress of a construction project. It is an important consideration for an organization. The organization needs a full report that is doing significant and internal funding for debt outstanding and progress. 

Capitalization of this interest may be a big issue just like material. It may help you in the bottom line.