Preface (Updated as of March 1, 2018) This guide was prepared by the Not-For-Profit Organizations Committee About AICPA Guides This AICPA Guide has been developed by the AICPA Not-for-Profit Entities Expert Panel and Guide Task Force to assist practitioners in performing and reporting on their audit engagements and to assist management of not-for-profit entities (NFPs) in the preparation of their financial statements in conformity with U.S generally accepted accounting principles (GAAP) An AICPA Guide containing auditing guidance related to generally accepted auditing standards (GAAS) is recognized as an interpretive publication as defined in AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards.1 Interpretive publications are recommendations on the application of GAAS in specific circumstances, including engagements for entities in specialized industries Interpretive publications are issued under the authority of the AICPA Auditing Standards Board (ASB) after all ASB members have been provided an opportunity to consider and comment on whether the proposed interpretive publication is consistent with GAAS The members of the ASB have found the auditing guidance in this guide to be consistent with existing GAAS Although interpretive publications are not auditing standards, AU-C section 200 requires the auditor to consider applicable interpretive publications in planning and performing the audit because interpretive publications are relevant to the proper application of GAAS in specific circumstances If the auditor does not apply the auditing guidance in an applicable interpretive publication, the auditor should document how the requirements of GAAS were complied with in the circumstances addressed by such auditing guidance The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to auditing Conforming changes made to the auditing guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff Any changes to the auditing guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the Statements on Auditing Standards (SASs) The Financial Reporting Executive Committee (FinREC) is the designated senior committee of the AICPA authorized to speak for the AICPA in the areas of financial accounting and reporting The financial accounting and reporting guidance contained in this guide was approved by the affirmative vote of at least two-thirds of the members of FinREC in November 2012 Conforming changes made to the financial accounting and reporting guidance after that vote are approved by the FinREC Chair (or his or her designee) Updates made to the financial accounting and reporting guidance in this guide exceeding that of conforming changes are approved by the affirmative vote of at least twothirds of the members of FinREC This guide does the following: • Identifies certain requirements set forth in FASB Accounting Standards Codificationđ (ASC) Describes FinREC’s understanding of prevalent or sole industry practice concerning certain issues In addition, this guide may indicate that FinREC expresses a preference for the prevalent or sole industry practice, or it may indicate that FinREC expresses a preference for another practice that is not the prevalent or sole industry practice; alternatively, FinREC may express no view on the matter • Identifies certain other, but not necessarily all, industry practices concerning certain accounting issues without expressing FinREC’s views on them • Provides guidance that has been supported by FinREC on the accounting, reporting, or disclosure treatment of transactions or events that are not set forth in FASB ASC Accounting guidance for nongovernmental entities included in an AICPA Guide is a source of nonauthoritative accounting guidance As discussed in paragraph 1.13, FASB ASC is the authoritative source of U.S accounting and reporting standards for nongovernmental NFPs This guide does not include accounting guidance for governmental entities AICPA members should be prepared to justify departures from GAAP, as discussed in the “Accounting Principles Rule” (ET sec 1.320.001 and 2.320.001).2 Any auditing guidance in a guide appendix or chapter appendix in a guide, or in an exhibit, while not authoritative, is considered an “other auditing publication.” In applying such guidance, the auditor should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the audit Although the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff, and the auditor may presume that it is appropriate AICPA Guides may include certain content presented as “Supplement”, “Appendix”, or “Exhibit.” A supplement is a reproduction, in whole or in part, of authoritative guidance originally issued by a standard setting body (including regulatory bodies) and applicable to entities or engagements within the purview of that standard setter, independent of the authoritative status of the applicable AICPA Guide Both appendixes and exhibits are included for informational purposes and have no authoritative status Purpose and Applicability This guide applies to the financial statements of nongovernmental NFPs that meet the definition of an NFP included in the FASB ASC glossary See chapter 1, "Introduction," for further information This guide does not discuss the application of all GAAP and all GAAS that are relevant to the preparation and audit of financial statements of NFPs This guide is directed primarily to those aspects of the preparation and audit of financial statements that are unique to NFPs or are considered particularly significant to them Recognition 2018 Guide Edition AICPA Senior Committees Auditing Standards Financial Reporting Board Executive Committee Mike Santay, Chair Jim Dolinar, Chair Rick Reisig, ASB Member Cathy Clarke, FinREC Member The AICPA gratefully acknowledges those current and former members of the AICPA Notfor-Profit Entities Expert Panel who reviewed or otherwise contributed to the development of this edition of the guide: Jennifer Brenner, Karen Craig, Susan L Davis, Christina A Dutch, Lisa Hinkson, Andrew Prather, and James R Summer III The AICPA also thanks Susan E Budak for her invaluable assistance in updating the 2018 edition of the guide AICPA Staff Christopher Cole Associate Director Member Learning and Competency and Staff Liaison to the Not-for-Profit Entities Expert Panel and Guide Task Force 2013 Guide Edition Not-for-Profit Entities Expert Panel and Guide Task Force (2005-2012) (members when this edition was (past members who contributed to this completed) edition) Gregory Capin, Co-Chair Stephen Kattell, Former Co-Chair Cathy J Clarke, Co-Chair Robert Batarla Frank Jakosz, Former Co-Chair Susan E Budak Amanda E Nelson, Former Co-Chair John M Cotman Elaine Allen Marianne E DeVries Jennifer Brenner Julie L Floch Karen Craig Larry Goldstein W Michael Fritz Richard C Holt Ellen Hobby J Mark Jenkins Jennifer Hoffman Bliss Jones Laurie Horvath Peter Knutson John A Mattie Elizabeth E Krisher Catherine E Mickle Richard F Larkin Stuart J Miller Tim McCutcheon Andrew M Prather Drew M Paluf Susan C Stewart James Remis Andrea Wright John Ring Nancy E Shelmon Kathleen Spencer Paul C Sullivan AICPA Senior Committees Auditing Standards Board (members when this edition was completed) Darrel R Schubert, Chair David Morris Brian Bluhm Kenneth R Odom Robert E Chevalier Don M Pallais Sam K Cotterell Brian R Richson Jim Dalkin Mike Santay David Duree Kay W Tatum Jennifer Haskell Kim L Tredinnick Ed G Jolicoeur Barbara Lewis Carolyn H McNerney H Steven Vogel Kurtis A Wolff Financial Reporting Executive Committee (members when this edition was (past members who contributed to this completed) edition) Rich Paul, Chair Jay Hanson, Former Chair Aaron Anderson Benjamin S Neuhausen, Former Chair Linda Bergen David Alexander Adam Brown Robert Axel Terry Cooper Rick Arpin Lawrence Gray Kimber Bascom Randolph Green Glenn Bradley Mary E Kane Neri Bukspan Jack Markey Brett Cohen Joseph D McGrath Pascal Desroches Rebecca Mihalko James A Dolinar Steve Moehrle L Charles Evans Angela Newell Faye Feger Mark Scoles Bruce Johnson Brad Sparks Richard Jones Dusty Stallings Carl Kampel Lisa Kelley David Morris Jonathon Nus Richard Petersen Roy Rendino Terry Spidell Randall Sogoloff Richard K Stuart Enrique Tejerina Robert Uhl Dan Weaver Dan Zwarn The AICPA and the Not-for-Profit Entities Expert Panel and Guide Task Force gratefully acknowledge the invaluable assistance of Joel Tanenbaum to the development and content of this guide Guidance Considered in This Edition This edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued (March 1, 2013, edition), and other revisions as deemed appropriate Relevant guidance issued through March 1, 2018, has been considered in the development of this edition of the guide However, this guide does not include all audit, accounting, reporting, regulatory, and other requirements applicable to an entity or a particular engagement This guide is intended to be used in conjunction with all applicable sources of relevant guidance Relevant guidance that is issued and effective for fiscal years ending on or before March 1, 2018, is incorporated directly in the text of this guide Relevant guidance issued but not yet effective as of March 1, 2018 but becoming effective for fiscal years ending on or before June 30, 2018 is also presented directly in the text of the guide, but it is shaded gray and accompanied by a footnote indicating the effective date of the new guidance In addition, because of the significance of the changes, relevant guidance for FASB Accounting Standards Update (ASU) No 2016-14, Presentation of Financial Statements for Not-for-Profit Entities (Topic 958), is also included as shaded text within the guide, even though the amendments in FASB ASU No 2016-14 are effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (for example, years ending December 31, 2018 and years ending June 30, 2019), and for interim periods within fiscal years beginning after December 15, 2018 Limited guidance from FASB ASU No 2014-09, Revenue from Contracts with Customers (Topic 606), appears as shaded text, primarily within chapter 12, “Revenues and Receivables From Exchange Transactions,” to help readers prepare for the effective date of those amendments, which for most NFPs is annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019, with a year earlier application required for those that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-thecounter market, The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader’s purposes (as part of the guide’s “dual guidance” treatment of applicable new guidance) Relevant guidance issued but not yet effective as of March 1, 2018 and not becoming effective until after June 30, 2018, is referenced in a “guidance update” box; that is, a box that contains summary information on the guidance issued but not yet effective In updating this guide, all guidance issued up to and including the following was considered, but not necessarily incorporated, as determined based on applicability: • FASB ASU No 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities • SAS No 133, Auditor Involvement With Exempt Offering Documents (AU-C sec 945) • Interpretation No 4, “Performing and Reporting on an Attestation Engagement Under Two Sets of Attestation Standards,” (AT-C sec 9105 par .31–.35) of ATC section 105, Concepts Common to All Attestation Engagements3 • Statement of Position 17-1, Performing Agreed-Upon Procedures Related to Rated Exchange Act Asset-Backed Securities Third-Party Due Diligence Services as Defined by SEC Release No 34-72936 (AUD sec 60)4 Users of this guide should consider guidance issued subsequent to those items listed previously to determine their effect on entities and engagements covered by this guide In determining the applicability of recently issued guidance, its effective date should also be considered The changes made to this edition of the guide are identified in appendix G, “Schedule of Changes Made to the Text From the Previous Edition.” The changes not include all those that might be considered necessary if the guide were subjected to a comprehensive review and revision FASB standards quoted are from FASB Accounting Standards Codification ©2018, Financial Accounting Foundation All rights reserved Used by permission Auditors who perform audits under Government Auditing Standards; the Single Audit Act Amendments of 1996; and Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; or Title U.S Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), should also refer to the AICPA Audit Guide Government Auditing Standards and Single Audits FASB ASC Pending Content Presentation of Pending Content in FASB ASC Amendments to FASB ASC (issued in the form of ASUs) are initially incorporated into FASB ASC in "pending content" boxes following the paragraphs being amended with links to the transition information The pending content boxes are meant to provide users with information about how the guidance in a paragraph will change as a result of the new guidance Pending content applies to different entities at different times due to varying fiscal yearends, and because certain guidance may be effective on different dates for public and nonpublic entities As such, FASB maintains amended guidance in pending content boxes within FASB ASC until the roll-off date Generally, the roll-off date is six months following the latest fiscal year end for which the original guidance being amended could still be applied Presentation of FASB ASC Pending Content in AICPA Guides NFP's use of the asset contributed may be temporary or permanent Some donorimposed restrictions impose limits that are permanent, for example, stipulating that resources be invested in perpetuity (not used up) Others are temporary, for example, stipulating that resources may be used only after a specified date, for particular programs or services, or to acquire buildings and equipment A donor stipulation (donors include other types of contributors, including makers of certain grants) that specifies a use for a contributed asset that is more specific than broad limits resulting from the following: (a) the nature of the NFP, (b) the environment in which it operates, (c) the purposes specified in its articles of incorporation or bylaws or comparable documents for an unincorporated association Some donors impose restrictions that are temporary in nature, for example, stipulating that resources be used after a specified date, for particular programs or services, or to acquire buildings or equipment Other donors impose restrictions that are perpetual in nature, for example, stipulating that resources be maintained in perpetuity Laws may extend those limits to investment returns from those resources and to other enhancements (diminishments) of those resources Thus, those laws extend donor-imposed restrictions.4 donor-restricted endowment fund An endowment fund that is created by a donor stipulation requiring investment of the gift in perpetuity or for a specified term Some donors may require that a portion of income, gains, or both be added to the gift and invested subject to similar restrictions The term does not include a boarddesignated endowment fund See endowment fund An endowment fund that is created by a donor stipulation (donors include other types of contributors, including makers of certain grants) requiring investment of the gift in perpetuity or for a specified term Some donors or laws may require that a portion of income, gains, or both be added to the gift and invested subject to similar restrictions The term does not include a board-designated endowment fund See endowment fund.5 donor-restricted support Donor-restricted revenues or gains from contributions that increase net assets with donor restrictions (donors include other types of contributors, including makers of certain grants).6 economic interest An NFP’s interest in another entity that exists if any of the following criteria are met: (a) the other entity holds or utilizes significant resources that must be used for the unrestricted or restricted purposes of the NFP, either directly or indirectly by producing income or providing services, or (b) the NFP is responsible for the liabilities of the other entity An NFP’s interest in another entity that exists if any of the following criteria are met: (a) the other entity holds or utilizes significant resources that must be used for the purposes of the NFP, either directly or indirectly by producing income or providing services, or (b) the NFP is responsible for the liabilities of the other entity.7 endowment fund An established fund of cash, securities, or other assets to provide income for the maintenance of an NFP The use of the assets of the fund may be permanently restricted, temporarily restricted, or unrestricted Endowment funds generally are established by donor-restricted gifts and bequests to provide (a) a permanent endowment, which is to provide a permanent source of income, or (b) a term endowment, which is to provide income for a specified period An established fund of cash, securities, or other assets to provide income for the maintenance of an NFP The use of the assets of the fund may be with or without donor-imposed restrictions Endowment funds generally are established by donorrestricted gifts and bequests to provide a source of income in perpetuity or for a specified period See donor-restricted endowment fund Alternatively, an NFP’s governing board may earmark a portion of its net assets as a boarddesignated endowment fund See funds functioning as endowment.8 equity interests Used broadly to mean ownership interests of investor-owned entities; owner, member, or participant interests of mutual entities; and owner or member interests in the net assets of NFPs financial asset Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to either (a) receive cash or another financial instrument from a second entity or (b) exchange other financial instruments on potentially favorable terms with the second entity financial flexibility The ability of an entity to take effective actions or alter amounts and timing of cash flows so it can respond to unexpected needs and opportunities financial liability A contract that imposes on one entity an obligation to either (a) deliver cash or another financial instrument to a second entity or (b) exchange other financial instruments on potentially unfavorable terms with the second entity financially interrelated entity A recipient entity and a specified beneficiary are financially interrelated entities if the relationship between them has both of the following characteristics: (a) one of the entities has the ability to influence the operating and financial decisions of the other and (b) one of the entities has an ongoing economic interest in the net assets of the other functional classification A method of grouping expenses according to the purpose for which the costs are incurred The primary functional classifications are program services and supporting activities The term functional classification will be replaced with functional expense classification upon the effective date of FASB ASU No 2016-14.9 functional expense classification A method of grouping expenses according to the purpose for which the costs are incurred The primary functional classifications of an NFP are program services and supporting activities.10 fund-raising activities Activities undertaken to induce potential donors to contribute money, securities, services, materials, facilities, other assets, or time funds functioning as endowment Unrestricted net assets designated by an entity’s governing board, rather than restricted by a donor or other outside agency, to be invested to provide income for a long but unspecified period A board-designated endowment, which results from an internal designation, is not donor-restricted and is classified as unrestricted net assets The governing board has the right to decide at any time to expend the principal of such funds (Sometimes referred to as quasi endowment funds.) See also designated net assets Net assets without donor restrictions (donors include other types of contributors, including makers of certain grants) designated by an entity's governing board to be invested to provide income for generally a long but not necessarily specified period A board-designated endowment, which results from an internal designation, is generally not donor-restricted and is classified as net assets without donor restrictions The governing board has the right to decide at any time to expend such funds In rare circumstances, funds functioning as endowment also can include a portion of net assets with donor restrictions For example, if an NFP is unable to spend donor-restricted contributions in the near term, the board sometimes considers the long-term investment of these funds (Sometimes referred to as quasi-endowment funds or board-designated endowment funds.)11 goodwill An asset representing the future economic benefits arising from other assets acquired in a business combination or an acquisition by an NFP that are not individually identified and separately recognized For ease of reference, this term also includes the immediate charge recognized by NFPs in accordance with FASB ASC 958-805-25-29 identifiable An asset is identifiable if it meets either of the following criteria: (a) it is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to so, or (b) it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations inherent contribution A contribution that results if an entity voluntarily transfers assets (or net assets) or performs services for another entity in exchange for either no assets or for assets of substantially lower value and unstated rights or privileges of a commensurate value are not involved intangible assets Assets (not including financial assets) that lack physical substance (The term intangible assets is used to refer to intangible assets other than goodwill.) intermediary Although in general usage the term intermediary encompasses a broad range of situations in which an entity acts between two or more other parties, in this usage, it refers to situations in which a recipient entity acts as a facilitator for the transfer of assets between a potential donor and a potential beneficiary (donee) but is neither an agent or trustee nor a donee and donor joint activity An activity that is part of the fund-raising function and has elements of one or more other functions, such as programs, management and general, membership development, or any other functional category used by the entity joint costs The costs of conducting joint activities that are not identifiable with a particular component of the activity For example, the cost of postage for a letter that includes both fund-raising and program components is a joint cost Joint costs may include the following costs: salaries, contract labor, consultants, professional fees, paper, printing, postage, event advertising, telephones, airtime, and facility rentals lead interest The right to the benefits (cash flows or use) of assets during the term of a split-interest agreement, which generally starts upon the signing of the agreement and terminates at either of the following times: (a) after a specified number of years (period-certain) or (b) upon the occurrence of a certain event, commonly either the death of the donor or the death of the lead interest beneficiary (life-contingent) legal entity Any legal structure used to conduct activities or to hold assets Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts management and general activities Activities that are not identifiable with a single program, fund-raising activity, or membership-development activity but that are indispensable to the conduct of those activities and to an entity's existence Supporting activities that are not directly identifiable with one or more program, fundraising, or membership-development activities.12 medium A means of mass communication, such as direct mail, direct response advertising, or television membership-development activities Membership-development activities include soliciting for prospective members and membership dues, membership relations, and similar activities However, if there are no significant benefits or duties connected with membership, the substance of membership-development activities may, in fact, be fund-raising merger date The date on which the merger becomes effective merger of not-for-profit entities A transaction or other event in which the governing bodies of two or more NFPs cede control of those entities to create a new NFP natural expense classification A method of grouping expenses according to the kinds of economic benefits received in incurring those expenses Examples of natural expense classifications include salaries and wages, employee benefits, supplies, rent, and utilities A method of grouping expenses according to the kinds of economic benefits received in incurring those expenses Examples of natural expense classifications include salaries and wages, employee benefits, professional services, supplies, interest expense, rent, utilities, and depreciation.13 net assets The excess or deficiency of assets over liabilities of an NFP, which is classified into three mutually exclusive classes according to the existence or absence of donor-imposed restrictions See unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets The excess or deficiency of assets over liabilities of an NFP, which is divided into two mutually exclusive classes according to the existence or absence of donorimposed restrictions See net assets with donor restrictions and net assets without donor restrictions.14 net assets with donor restrictions The part of net assets of a not-for-profit entity that is subject to donor-imposed restrictions (donors include other types of contributors, including makers of certain grants).15 net assets without donor restrictions The part of net assets of a not-for-profit entity that is not subject to donor-imposed restrictions (donors include other types of contributors, including makers of certain grants).16 net income unitrust A trust established in connection with a split-interest agreement, in which the donor or a third-party beneficiary receives distributions during the agreement's term of the lesser of the net income earned by the trust or a fixed percentage of the fair value of the trust's assets, with or without recovery and distribution of the shortfall in a subsequent year Upon termination of the trust, an NFP receives the assets remaining in the trust noncontrolling interest The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent A noncontrolling interest is sometimes called a minority interest nonfinancial asset An asset that is not a financial asset Nonfinancial assets include land, buildings, use of facilities or utilities, materials and supplies, intangible assets, or services nonprofit activity An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing benefits, other than goods or services at a profit or profit equivalent, as a fulfillment of an entity’s purpose or mission (for example, goods or services to beneficiaries, customers, or members) As with an NFP, a nonprofit activity possesses characteristics that distinguish it from a business or a for-profit business entity nonreciprocal transfer A transaction in which an entity incurs a liability or transfers an asset to another entity (or receives an asset or cancellation of a liability) without directly receiving (or giving) value in exchange not-for-profit entity An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: (a) contributions of significant amounts of resources from resource providers who not expect commensurate or proportionate pecuniary return, (b) operating purposes other than to provide goods or services at a profit, and (c) absence of ownership interests like those of business enterprises Entities that clearly fall outside this definition include the following: (a) all investor-owned enterprises and (b) entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance companies, credit unions, farm and rural electric cooperatives, and employee benefit plans ongoing economic interest in the net assets of another A residual right to another NFP's net assets that results from an ongoing relationship The value of those rights increases or decreases as a result of the investment, fund-raising, operating, and other activities of the other entity owners Used broadly to include holders of ownership interests (equity interests) of investor-owned entities, mutual entities, or NFPs Owners include shareholders, partners, proprietors, or members or participants of mutual entities Owners also include owner and member interests in the net assets of NFPs permanent restriction A donor-imposed restriction that stipulates that resources be maintained permanently but permits the NFP to use up or expend part or all of the income (or other economic benefits) derived from the donated assets The preceding term will be deleted upon the effective date of FASB ASU No 201614.17 permanently restricted net assets The part of the net assets of an NFP resulting from the following: (a) contributions and other inflows of assets whose use by the NFP is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the NFP, (b) other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) reclassifications from (or to) other classes of net assets as a consequence of donorimposed stipulations The preceding term will be deleted upon the effective date of FASB ASU No 201614.18 pooled income fund A trust in which donors are assigned a specific number of units based on the proportion of the fair value of their contributions to the total fair value of the pooled income fund on the date of the donor's entry to the pooled fund Until a donor's death, the donor (or the donor's designated beneficiary or beneficiaries) is paid the actual income (as defined under the arrangement) earned on the donor's assigned units Upon the donor's death, the value of these assigned units reverts to the NFP program services The activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the NFP exists Those services are the major purpose for and the major output of the organization and often relate to several major programs programmatic investing The activity of making loans or other investments that are directed at carrying out a not-for-profit entity’s purpose for existence rather than investing in the general production of income or appreciation of an asset (for example, total return investing) An example of programmatic investing is a loan made to lower-income individuals to promote home ownership.19 promise to give A written or oral agreement to contribute cash or other assets to another entity A promise carries rights and obligations—the recipient of a promise to give has a right to expect that the promised assets will be transferred in the future, and the maker has a social and moral obligation, and generally a legal obligation, to make the promised transfer A promise to give may be either conditional or unconditional quasi endowment funds See funds functioning as endowment readily determinable fair value An equity security has a readily determinable fair value if it meets any of the following conditions: a The fair value of an equity security is readily determinable if sales prices or bid-and-asked quotations are currently available on a securities exchange registered with the U.S Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the overthe-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by OTC Markets Group Inc Restricted stock meets that definition if the restriction terminates within one year b The fair value of an equity security traded only in a foreign market is readily determinable if that foreign market is of a breadth and scope comparable to one of the U.S markets referred to above c The fair value of an equity security that is an investment in a mutual fund or in a structure similar to a mutual fund (that is, a limited partnership or a venture capital entity) is readily determinable if the fair value per share (unit) is determined and published and is the basis for current transactions reclassification Simultaneous increase of one class of net assets and decrease of another, usually as a result of the release or lapsing of restrictions The term reclassification will be replaced with reclassification of net assets upon the effective date FASB ASU No 2016-14.20 reclassification of net assets Simultaneous increase of one class of net assets and decrease of another A reclassification of net assets usually results from a donorimposed restriction (donors include other types of contributors, including makers of certain grants) being satisfied or otherwise lapsing.21 remainder interest The right to receive all or a portion of the assets of a split-interest agreement at the end of the agreement’s term restricted support Donor-restricted revenues or gains from contributions that increase either temporarily restricted net assets or permanently restricted net assets See also unrestricted support The term restricted support will be replaced with donor-restricted support upon the effective date of FASB ASU No 2016-14.22 spending rate The portion of total return on investments used for fiscal needs of the current period, usually used as a budgetary method of reporting returns of investments It is usually measured in terms of an amount or a specified percentage of a moving average market value Typically, the selection of a spending rate emphasizes the use of prudence and a systematic formula to determine the portion of cumulative investment return that can be used to support fiscal needs of the current period and the protection of endowment gifts from a loss of purchasing power as a consideration in determining the formula to be used split-interest agreement An agreement in which a donor enters into a trust or other arrangement under which an NFP receives benefits that are shared with other beneficiaries A typical split-interest agreement has the following two components: (a) a lead interest and (b) a remainder interest stipulation A statement by a donor that creates a condition or restriction on the use of transferred resources supporting activities All activities of an NFP other than program services Generally, they include the following: (a) management and general activities, (b) fund-raising activities, and (c) membership development activities temporarily restricted net assets The part of the net assets of an NFP resulting from the following: (a) contributions and other inflows of assets whose use by the NFP is limited by donor-imposed stipulations that either expire by the passage of time or can be fulfilled and removed by actions of the NFP pursuant to those stipulations, (b) other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) reclassifications from or to other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or their fulfillment and removal by actions of the NFP pursuant to those stipulations The preceding term will be deleted upon the effective date of FASB ASU No 201614.23 temporary restriction A donor-imposed restriction that permits the donee to use up or expend the donated assets as specified and that is satisfied either by the passage of time or by actions of the donee The preceding term will be deleted upon the effective date of FASB ASU No 201614.24 term endowment An endowment fund established to provide income for a specified period See endowment fund total return A measure of investment performance that focuses on the overall return on investments, including interest and dividend income as well as realized and unrealized gains and losses on investments Frequently used in connection with a spending-rate formula to determine how much of that return will be used for fiscal needs of the current period trustee An entity that has a duty to hold and manage assets for the benefit of a specified beneficiary in accordance with a charitable trust agreement In some states, NFPs are organized under trust law rather than as corporations Those NFPs are not trustees as defined because, under those statutes, they hold assets in trust for the community or some other broadly described group, rather than for a specific beneficiary unconditional promise to give A promise to give that depends only on passage of time or demand by the promisee for performance underwater endowment fund A donor-restricted endowment fund for which the fair value of the fund at the reporting date is less than either the original gift amount or the amount required to be maintained by the donor or by law that extends donor restrictions.25 unrestricted net assets The part of net assets of an NFP that is neither permanently restricted nor temporarily restricted by donor-imposed stipulations The only limits on the use of unrestricted net assets are the broad limits resulting from the following: (a) the nature of the NFP, (b) the environment in which the NFP operates, (c) the purposes specified in the NFP's articles of incorporation or bylaws, and (d) limits resulting from contractual agreements with suppliers, creditors, and others entered into by the NFP in the course of its business Unrestricted net assets generally result from revenues from providing services, producing and delivering goods, receiving unrestricted contributions, and receiving dividends or interest from investing in income-producing assets, less expenses incurred in providing services, producing and delivering goods, raising contributions, and performing administrative functions The preceding term will be deleted upon the effective date of FASB ASU No 201614.26 unrestricted support Revenues or gains from contributions that are not restricted by donors See also restricted support The preceding term will be deleted upon the effective date of FASB ASU No 201614.27 variance power The unilateral power to redirect the use of the transferred assets to another beneficiary A donor explicitly grants variance power if the recipient entity's unilateral power to redirect the use of the assets is explicitly referred to in the instrument transferring the assets Unilateral power means that the recipient entity can override the donor’s instructions without approval from the donor, specified beneficiary, or any other interested party voluntary health and welfare entities An NFP that is formed for the purpose of performing voluntary services for various segments of society and that is tax exempt (organized for the benefit of the public), supported by the public, and operated on a notfor-profit basis Most voluntary health and welfare entities concentrate their efforts and expend their resources in an attempt to solve health and welfare problems of our society and, in many cases, those of specific individuals As a group, voluntary health and welfare entities include those NFPs that derive their revenue primarily from voluntary contributions from the general public to be used for general or specific purposes connected with health, welfare, or community services For purposes of this definition, the general public excludes governmental entities when determining whether an NFP is a voluntary health and welfare entity The following is a list of additional terms that have been used in this guide: assets held in trust Resources held and administered, at the direction of the resource provider, by an outside trustee for the benefit of an NFP, frequently in connection with a split-interest agreement or permanent endowment Resources held and administered, at the direction of the resource provider, by an outside trustee for the benefit of an NFP, frequently in connection with a splitinterest agreement or perpetual endowment.28 corpus The principal amount of a gift or trust Usually refers to the portion of a splitinterest gift or an endowment fund that must be maintained over a specified period or in perpetuity equity See net assets help accomplish the not-for-profit entity’s mission Actions that help accomplish the NFP’s mission are actions that either benefit the recipient (such as by improving the recipient's physical, mental, emotional, or spiritual health and well-being) or benefit society (by addressing societal problems) life interest in real estate Also referred to as a life estate, is the right of an individual to use or live in property during their lifetime Upon the death of the life tenant, or their relinquishment of the right to use, the remainder interest owner receives the property without limitation A charitable life estate provides for a charitable contribution deduction under U.S tax law when a donor transfers ownership of a residence or farm to a qualified charitable organization and retains a life tenant interest in the property Under such an arrangement, the charitable organization receives title and ownership of the property outright, subject to the life use rights life tenant One who possesses a life-use right to property, frequently used in connection with a split-interest agreement net investment (equity) in land, buildings, and equipment The total carrying value (after accumulated depreciation) of all property and equipment, less directly related liabilities This amount is exclusive of real properties that are held for investment purposes official statement The common term used for the offering document or offering circular prepared in connection with a new issue of municipal securities Although functionally equivalent to the prospectus used in connection with registered securities, an official statement for municipal securities is exempt from the prospectus requirements of the Securities Act of 1933 program activities See program services restricted net assets Resources whose use is restricted by donors as contrasted with those over which the NFP has complete control and discretion Restricted net assets may be permanently or temporarily restricted The preceding definition will be deleted upon the effective date of FASB ASU No 2016-14.29 Notes The amendments in FASB Accounting Standards Update (ASU) No 2016-14, Notfor-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, are effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (for example, years ending December 31, 2018, and years ending June 30, 2019), and for interim periods within fiscal years beginning after December 15, 2018 Application to interim financial statements is permitted but not required in the initial year of application Early application of the amendments is permitted See footnote See footnote See footnote See footnote See footnote See footnote See footnote See footnote 10 See footnote 11 See footnote 12 See footnote 13 See footnote 14 See footnote 15 See footnote 16 See footnote 17 See footnote 18 See footnote 19 See footnote 20 See footnote 21 See footnote 22 See footnote 23 See footnote 24 See footnote 25 See footnote 26 See footnote 27 See footnote 28 See 29 footnote See footnote WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... Member Learning and Competency and Staff Liaison to the Not- for- Profit Entities Expert Panel and Guide Task Force 2013 Guide Edition Not- for- Profit Entities Expert Panel and Guide Task Force (2005-2012)... 1, 2018) This guide was prepared by the Not- For- Profit Organizations Committee About AICPA Guides This AICPA Guide has been developed by the AICPA Not- for- Profit Entities Expert Panel and Guide. .. undergo the audit under the Uniform Guidance audit requirements The AICPA Audit Guide Government Auditing Standards and Single Audits has been fully updated for the Uniform Guidance audit requirements