Not-For-Profit External Financial Reporting
By Elise Zuleger, CPA
In this second of a five part series, we will focus on the statement of financial position and its components.
Statement of Financial Position
The first statement that must be reported, if the not-for-profit organization (NFP) has an external reporting requirement, is the statement of financial position. The statement of financial position is comprised of three sections - assets, liabilities, and net assets. This statement can be equated to that of a for-profit company's balance sheet. The premise of assets equaling liabilities plus equity is generally the same. The only difference is in the equity section; instead of equity, NFPs have net assets.
The assets and liabilities of a NFP are the same as that of a for-profit company. The assets are at the top and typically descend in order of liquidity. Liabilities follow the assets and they also typically descend in order of liquidity.
The last section on the statement of financial position is net assets. Since NFPs do not have owners, there is no equity. Any excess of revenue over expenses must stay within the NFP. This section is a bit different from the equity section of a for-profit company in that there are sub-categories within the net assets. The sub-categories of net assets are: Unrestricted, Temporarily Restricted, and Permanently Restricted. The order of this is important because it shows the liquidity of the net assets, similar to assets and liabilities.
Unrestricted Net Assets - those assets that do not have any donor-imposed restrictions on how or when they can be used, and the NFP is free to use them in any way it sees fit.
Temporarily Restricted Net Assets - these contributed assets carry donor-imposed restrictions that require either a certain amount of time to pass and/or the NFP using the assets for a specific purpose.
Permanently Restricted Net Assets - these contributed assets carry donor-imposed restrictions stating that the corpus be invested in perpetuity and only the income be made available in accordance with donor restrictions.
In the not too distant future (effective for year ending December 31, 2018) there will be changes is five areas of nonprofit financial statement reporting, which include:
* Net asset classes
* Liquidity and availability of resources
* Expense reporting
* Statement of cash flows
* Investment return
In the coming months we will keep you abreast of the above-mentioned changes. If you have any questions regarding the above information, please give us a call.
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If you suspect fraud may be occurring in your organization, there is action you can take.
At Winter, Kloman, Moter & Repp, S.C. our Certified Fraud Examiners (CFE) can assist you with putting internal controls in place to help prevent and detect fraud.
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If you suspect fraud is occurring at your organization or would like help putting internal controls in place, give us a call.
235 N. Executive Drive, 1040 Oconomowoc Parkway
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Brookfield, WI 53005 262.567.6540
138 Hospital Drive, Suite 100
Watertown, WI 53098
At Winter, Kloman, Moter & Repp S.C., our not-for-profit team provides quality audit, accounting, tax, and consulting services to a variety of not-for-profit agencies, government funded businesses, private foundations, and assorted charitable organizations. Our experienced team has helped many not-for-profit organizations throughout Southeastern Wisconsin grow and thrive including:
- Human Service Agencies
- Cultural & Arts Organizations
- Charitable & Religious Organizations
- Educational & Day Care Institutions
- Professional & Trade Associations
- Assisted Living Facilities
- HUD/WHEDA Housing Projects
- Government-funded For-Profit Businesses
We concentrate on helping you best manage public or donated funds, analyzing how to get the most from your resources and helping you implement your plans to stretch every dollar. Our team of professionals understands your complex financial reporting needs, and will help you to accurately report your finances in an understandable way. We provide the independent audit and accounting services required by many of your funding sources by taking a value-added approach, implementing ever-changing tax reporting requirements, providing information technology consulting, and working with every aspect of your organization to support your success.