Common Financial Reporting Deficiencies (Part 3)
Continuing on from Parts 1 and 2, for this post we’ll discuss common errors in the Statements of Cash Flow and Notes to the Financial Statements as covered by our own Phil Bergamo and Jessica Dima a recent EisnerAmper LLP webinar titled “Common Financial Reporting Deficiencies for Not-for-Profit Organizations.”
|Common Error||Proper Reporting|
|Certain noncash transactions are shown in the body of the cash flow statement or not separately disclosed either at the bottom of the cash flow statement or in a footnote.||Transactions that only affect the statement of financial position should not be included in the body of the statement of cash flows (examples include purchase of fixed assets with a note or capital lease, refinancing of debt, reclassification of related party debt to net assets). These amounts should be disclosed at the bottom of the statement of cash flows or in the footnotes.
Noncash transactions that affect the statement of activities should be disclosed on the statement of cash flows as an adjustment to reconcile change in net assets to cash provided by operating activities (examples include donated fixed assets or equities, unrealized gain on investments, bad debt expense, forgiveness of debt).
|Interest paid is not disclosed on the statement of cash flow.||Interest paid during the fiscal year should be disclosed on the statement of cash flow. Interest paid can be calculated by taking interest expense and adding prior-year accrued interest and subtracting current-year accrued interest.|
|Donated services not recorded when meeting the applicable criteria for recognition.||Services that are contributed by non-affiliates of an organization generally should be recognized if they create or enhance a nonfinancial asset or meet ALL of the following criteria:
a.The service requires specialized skills (such as accountants, lawyers, architects, doctors, nurses or other professionals and craftsmen).
b.The service is provided by individuals who possess those skills.
c.The service would typically need to be purchased is not contributed.
|Donated services of volunteers not disclosed in the notes to the financial statements.||A description of volunteer services received (if material) should be disclosed in the footnotes. If the value of those services are not recognized, the fact that they do not meet the required criteria or reason they are not recognized should be disclosed.|
|The nature of restrictions on net assets not disclosed.||Information on the nature and extent of the donor-imposed restrictions must be presented on the face of the statements or in the notes to the financial statements.|