Global NGOs Spend More on Accounting Than Multinationals

accountingThe Harvard Business Review’s HBR Blog Network posted an interesting article about spending on accounting for organizations. It noted that NGOs with global operations spend significantly more on tracking finances than for-profit multinational companies. The restrictions placed on the use of funds by contributors and the resulting lack of general operating support cause many organizations to struggle to grow the necessary management capabilities and systems to effectively manage operations and growth.

Read the article here – Global NGOs Spend More on Accounting Than Multinationals  – and let us know your thoughts.

Q&A with an Author of Not-for-Profit Entities Audit and Accounting Guide

Non-Profits Talk co-author Tim McCutcheon spent four years serving on the revision team as part of AICPA’s National NPO Expert Panel and Audit Guide Task Force. The Guide is available today in hard copy format. Following is a brief Q&A with Tim on the new edition.TimMccutcheon

Why did the Guide need a major overhaul? The Not-for-Profit Entities Audit and Accounting Guide was first published following sweeping changes to the accounting standards for not-for-profit entities made by the Financial Accounting Standards Board (FASB) in 1995. Although it has been regularly updated, the industry has continued to evolve; diversity in practice, confusion over the application of standards to new kinds of transactions and structures, and certain gaps in the subject material made it a good idea to take a fresh look.

What are the most important changes to the Guide? The Guide has been expanded and enhanced significantly.

Expanded sections include:

  • Guidance and examples for reporting relationships with other not-for-profits, for-profits, partnerships, and financially interrelated entities.
  • Municipal bond debt, third-party credit enhancements, capitalization of interest, extinguishments and debt modifications, and the effects of terms (such as subjective acceleration clauses) on the classification of debt.
  • The legal and regulatory environment.

Entirely new content includes:

  • Reporting and measuring noncash gifts, including gifts in kind such as contributions of fundraising or informational materials, advertising, below-market interest rate loans, and bargain purchases.
  • A chapter on program-related investments and microfinance loans.
  • Guidance on fiduciary responsibilities to meet donor restrictions and for reporting the expiration of donor-imposed restrictions.

Other important changes are:

  • Updates to auditing content to conform to the results of the ASB clarity project, including coverage of audit planning, risk assessment and design of testing, evaluation of misstatements, auditor communications, going-concern considerations, and an overview of group audits.
  • Suggestions for audit procedures an auditor might consider as a supplement to the risk assessment procedures.

Is the Guide intended for auditors only? Non-profit managers, board members, auditors, and others interested in accounting and financial reporting considerations will find the guide useful. Chapters 2 and 15, in particular, will be of interest to a broad audience and are “must-reads.”

Are there any big surprises in the Guide, or anything likely to be controversial? That’s difficult to gauge. The sheer size of the Guide will surprise some. Others will be surprised at the technical complexities inherent in the proper accounting and financial reporting of not-for-profit entities, and the intersection of the legal aspects of transactions with the underlying financial reporting.

How can new users, or users not very familiar with the old Guide “get into” the Guide? First, don’t try to read it cover-to-cover! Do read Chapters 2 and 15 for general background. Then, as curiosity, issues or questions arise, scan the Table of Contents, and if you can’t find your issue there, try the Subject Index, which is much more detailed. If you are looking for a particular source of guidance, scan the Index of Pronouncements and Other Technical Guidance. For definitions of terms, check the Glossary.

In the coming weeks and months, this blog will feature chapter-by-chapter overviews of the Guide.

How Much is Too Much?

imagesCACATVKKMany nonprofit organizations struggle to make ends meet, and building a reserve is only a dream on the horizon. But other organizations have found themselves with a significant amount of unrestricted net assets on their statement of financial position. This situation frequently prompts the question – “How much is too much?”

Of course, building a reserve sufficient to cover the organization’s needs is prudent and necessary. How much should that reserve be? It depends on what your organization does, how it is paid, what the billing and collection cycle looks like, and any number of other factors. As a point of reference, the BBB Wise Giving Alliance Standards for Charity Accountability (http://www.bbb.org/us/standards-for-charity-accountability) recommends that unrestricted net assets available for use should not be more than three times the prior year’s expenses or current year’s budget.

This is a good rule of thumb, but doesn’t cover every situation. It is important that you are aware of your organization’s financial position and how an outside observer may interpret it. Understand where the organization is in its lifecycle, what strategic plans are in place that will draw on those reserves, and how the organization is managing the process. Be prepared to answer the question, “How much is too much” for your organization.