Either using a previous selected NFP CAFR or another NFP CAFR you are interested in; identify what financial statements are required of that organization?
The not-for-profit financial reports for the AARP – a nonprofit, nonpartisan membership organization that helps people 50 and over improve the quality of their lives.

How are they different or comparable to those provided by organizations that operate for profit?
The AARP’s consolidated financial statements include: Independent Auditors’ Report, Consolidated Statements of Financial Position, Consolidated Statements of Activities, Consolidation Statements of Cash Flows, and Notes to Consolidated Financial Statements.

How does the retained earnings section of for-profit organizations differ from that of the net assets section of not-for-profits?
According to FASB Statement No. 17, not-for-profits must classify their net assets into three categories based on the existence or absence of donor-imposed restrictions – unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.

Many of us make pledges such as to NPR, or other organizations (religious groups, social organizations, etc…) When a not-for-profit (NFP) receives these they must account for them. Sometimes though, they may have a “gift” for making a donation. And this may have different consequences. Think of an NFP that you know of. How do they raise money and are these pledges/contributions?
The AARP raises money by receiving charitable and advocacy program donations. Charitable contributions are received by the Foundation and Legal Counsel for the Elderly. Advocacy contributions are received and reported by the AARP directly. These donations are a combination of contributions and pledges.

What determines how they are recorded?
Contributions received with restrictions are reported as temporarily restricted. When the program or time restriction is met, the temporarily restricted net assets are reclassified to unrestricted net assets and are reported as net assets released from restrictions and detailed in the statement of activities.

How do these differ from exchange transactions?
A contribution is a transfer of assets in which the donor does not expect to receive equal value in return. An exchange transaction is a reciprocal transfer in which each party receives and gives up resources of commensurate value.

In both cases, when is revenue recorded?
Revenue is recorded when the service or action is carried out.

What is CAFR and what are its main components?
CAFR is a comprehensive annual financial report for government agencies. It includes the organization’s year-end financial statements. Main components of a CAFR typically include an introductory section, which includes a letter of transmittal, an organizational overview, and details about organizational officials. The next main component is the financial section. In this section users can locate an independent auditor’s report, management’s discussion and analysis, basic financial statements, required supplementary information, and a combination of financial statements and schedules. A CAFR may also include a third section for statistical information.

Differences between a budget and a comprehensive annual financial report mainly exist between the purpose for which each is prepared. A government entity is required by GASB to prepare two sets of financial statements, the government-wide statements and the fund financial statements. The government-wide statement consolidates all of the entity’s operations and includes a focus of the government’s economic resources. Fund financial statements show the government as a collection of separate funds. A CAFR goes beyond the GASB required statements, by preparing basic fiscal year-end financial statements for users which details all assets, liabilities, revenues, and expenditures. A CAFR will often provide users with a comparison of the original budget, the final budget with appropriations included, and an actual expenditures schedule. This is beneficial for all stakeholders of the organization, including state agencies and departments, employees, and funding contributors so that they can quickly identify budgetary concerns – overspending and lack of funding, or even the welfare of retirement funds for current and past employees.

Statements of Financial Accounting Standards (SFAS) 116 and 117
SFAS 116 underlies accounting for contributions received and contributions made. This statement requires that not-for-profit organizations distinguish between the contributions received that increase permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. In addition the statement requires that recognition of the expiration of donor-imposed restrictions is in the period in which the restrictions are met or expire.

Exceptions are made for certain types of contributions, including contributions of services, works of art, even historical treasures. If the contributed services either create or enhance nonfinancial assets, or persons providing special skills that would otherwise need to be purchased if not donated, the contribution is recognized.

SFAS 117 underlies the requirements for financial statements of not-for-profit organizations. The objective of Statement 117 is to enhance an organization’s financial statement relevance, understandability, and comparability. Specific information is required that reports the organization as a whole and that meets the common needs of external users of the financial statements.

In accordance with Statement 117, all not-for-profit organizations must provide a statement of financial position, a statement of activities, and a statement of cash flows. In addition, organizations must report amounts for its total assets, liabilities, and net assets in the statement of financial position; report the organization’s change in net assets in the statement of activities; and report the change in cash and cash equivalents in the statement of cash flows.

SFAS 116 and 117 are important statements for maintaining financial accounting standards for not-for-profit organizations. Statement 116 ensures that proper reporting procedures are followed when an organization receives or makes contributions, while Statement 117 underlies requirements for year-end financial statements.

The purpose of CAFR:
The purpose of CAFR (Comprehensive Annual Financial Report) is to report specific information to the different groups that use the financial report. As almost all non-profits are dependent on grants and public support, they must clearly define their primary activities and programs to report on a yearly basis the revenue and related expenditures. This is to justify each individual program, showing that there is enough revenue to cover their expenditures.

Why is the Federal Government not subject to GASB 34?
The Federal Government is not subject to GASB 34 because the government is highly political, therefore they can take actions such as wiping out deficits by simply printing new money. Local, state, and profit making organizations have to raise enough money to pay off debts, while the Federal Government is not held to these limitations. If the Federal Government cannot pay off its debt by raising taxes or cutting expenditures, it alone has the ability to print money. This is in effect an additional tax on all Americans, because it causes inflation and thus lowers the value of the money currently in circulation.

How do government-wide financial statements add information not available in fund financial statements?
Government-wide financial statements concentrate on the government as a whole and consolidates all of the government’s operations, which includes all economic resources and capital assets. The fund financial statements is used to view the government as a collection of separate funds. This schedule reports governmental funds and includes a column for general funds, one for each of the other major funds, and one that combines all the non-major funds.