As a CPA who has been in public practice for many years, I know the challenges that not-for-profit organizations face in financial reporting, and, more specifically, in applying generally accepted accounting principles.
Financial statements provide a compelling picture of the not-for-profit entity’s activities. However, in my experience, there are potential financial reporting concerns not-for-profit organizations need to be aware of to make sure that picture is conveyed properly. Here are three errors that come to mind.
- Gross Reporting of Revenues and Expenses Related to Fund-Raising Activities.
GAAP generally requires that an organization report gross amounts of revenues and expenses in its statement of activities. However, there are situations where the not-for-profit may receive proceeds from fundraising activities net of related fees. In these instances, the entity would not report the net amount as contribution revenue; rather, the amount of the donor’s contribution would be reported as contribution revenue, and the fees would be reported as fundraising expenses. Consider the following: