Risks and Uncertainties

1. 3.185 FASB ASC 275, Risks and Uncertainties, requires entities to include in their financial statements information about the following:
   • The nature of their operations
   • Use of estimates in the preparation of financial statements

   In addition, if specified disclosure criteria are met, it requires entities to include in their financial statements disclosures about the following:

   • Certain significant estimates
   • Current vulnerability due to certain concentrations

   FASB ASC 958-605-55-70 includes an example of a vulnerability of concentration of risk because of reliance on major donors. FASB ASC 275-10-55 includes other examples of disclosures that may be pertinent for NFPs.

2. 4.02 The FASB Accounting Standards Codification (ASC) glossary defines cash equivalents as short-term, highly liquid investments that have both of the following characteristics: (a) readily convertible to known amounts of cash [and] (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month U.S. Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Examples of items commonly considered to be cash equivalents are Treasury bills, commercial paper, money market funds, and federal funds sold (for an entity with banking operations).

   5.103 NFPs may receive communications that are intentions to give, rather than promises to give. For example, communications from individuals indicating that the NFP has been included in the individual’s will as a beneficiary are intentions to give. Such communications are not unconditional promises to give, because individuals retain the ability to modify their wills during their lifetimes. (When the probate court declares the will valid, the NFP should recognize contribution revenue and a receivable at the fair value of its interest in the estate, unless the promise is conditional, in which case a contribution should not be recognized until the conditions are substantially met.) Paragraphs 49–51 of FASB ASC 958-605-55 provide an example of an individual naming an NFP as a beneficiary in her will. NFPs should disclose information about conditional promises in valid wills in conformity with FASB ASC 958-310-50-4. In cases in which the testator has not placed a purpose restriction on the gift, the net asset classification of the contribution revenue from a bequest differs in practice among NFPs. Some have concluded that because the contribution is in receivable form and will be paid at a future date, it is inherently time-restricted and therefore should be recognized as donor-restricted support. Others have concluded that because restrictions can only be placed by donors and the receivable is due and payable on the date the will cleared probate, the contribution revenue is not donor restricted. The latter say that although there may be time delays between clearing probate and payment because of administrative dealings of the courts and attorneys, those delays are not the actions of donors, and the timeline is not a function of a time restriction placed by a donor. NFPs should consider the facts and circumstances in determining the classification of the contribution revenue.

   5.104 Per FASB ASC 958-605-25-10, solicitations for donations that clearly include wording such as “information to be used for budget purposes only” or that clearly and explicitly allow resource providers to rescind their indications that they will give are intentions to give rather than promises to give and should not be reported as contributions.

   5.105 Recognized contributed services should be reported as contribution revenue and as assets or expenses. Whether such contributions should be recognized is unaffected by whether the NFP could afford to purchase the services at their fair value.

C. Taxes, Part I. General

1. Does the NFP disclose the following information about its tax status?
   1. Reference to the Internal Revenue Code section under which the NFP is exempt
   2. Whether the NFP is classified as a private foundation [Common Practice]
2. If the NFP’s tax exempt status is in question by the IRS, is the potential impact disclosed?

   [FASB ASC 958-450-25-1]

3. If the NFP incurs income tax expense, do the notes to the financial statements disclose the amount of the taxes and describe the nature of the activities that generated the taxes?

   [FASB ASC 958-720-50-1]

4. If the NFP incurs income tax expense, do the notes to the financial statements include the disclosures required by FASB ASC 740, Income Taxes?

   [FASB ASC 740-10-15-2; FASB ASC 740-10-50]

5. If the NFP has incurred any income tax penalties or interest, has it disclosed the total amounts of interest and penalties recognized in the statement of activities and the total amounts of interest and penalties recognized in the statement of financial position?

   [FASB ASC 740-10-50-15]

6. If the NFP has unrecognized tax benefits, has it displayed the benefits as required by paragraphs 10A–12 of FASB ASC 740-10-45 and disclosed the information about those benefits required by FASB ASC 740-10-50-15? (Note: NFPs that are public entities are subject to additional requirements of FASB ASC 740-10-50-15A.)

   [FASB ASC 740-10-50-15; FASB ASC 740-10-45; Q&A 5250.15]

C. Investments Other Than Derivative Instruments, Part II. Statement of Financial Position

15. Does the NFP disclose all of the following information about its alternative investments for which ownership is represented by units of investments, such as shares of stock or partnership interests, for each interim and annual period, separately for each class of investment?
    1. The fair value (as determined by applying paragraphs 59–62 of FASB ASC 820-10-35) of the investments in the class?
    2. A description of the significant investment strategies of the investee(s) in the class?
    3. For each class of investment that includes investments that can never be redeemed with the investees, but the NFP receives distributions through the liquidation of the underlying assets of the investees, the period of time over which the underlying assets are expected to be liquidated by the investees if the investee has communicated the timing to the NFP or announced the timing publicly, or if the timing is unknown, that fact?
    4. The amount of the NFP’s unfunded commitments related to investments in the class?
    5. A general description of the terms and conditions upon which the investor may redeem investments in the class (for example, quarterly redemption with 60 days’ notice)?
    6. The circumstances in which an otherwise redeemable investment in the class (or a portion thereof) might not be redeemable (for example, investments subject to a lockup or gate)?
    7. When a restriction from redemption might lapse for those otherwise redeemable investments that are restricted from redemption as of the measurement date if the investee has communicated that timing to the NFP or announced the timing publicly, that fact and how long the restriction has been in effect?
    8. Any other significant restriction on the ability to sell investments in the class at the measurement date?
    9. The plans to sell and any remaining actions required to complete the sale of any group of investments that would otherwise meet the criteria for probable sale except that the individual investments to be sold have not been identified? (The disclosure is made so the investments continue to qualify for the practical expedient in FASB ASC 820-10-35-59.) [FASB ASC 820-10-50-6A; “Pending Content” in FASB ASC 820-10-50-6A]

E. Donated or Contributed Services, Part III. Statement of Activities

1. If the NFP receives contributed services, does it disclose the following?
   1. A description of the programs or activities for which those services were used
   2. The nature and extent of contributed services received for the period
   3. The amount recognized as revenues for the period
   4. The fair value of contributed services received but not recognized, if practicable (optional)
   5. Nonmonetary information such as the number and trends of donated hours received or service outputs provided by volunteer efforts (optional)
   6. Dollar amount of contributions raised by volunteers (optional) FASB ASC 958-605-50-1]

F. Accounts, Notes, Contributions, and Loans Receivable, Part II. Statement of Financial Position

6. If the NFP received unconditional promises to give, does it disclose the following?
   1. The amounts of promises receivable in less than one year, in one to five years, and in more than five years
   2. The face amount of contributions promised to the NFP
   3. The amount of any allowance for uncollectible promises receivable
   4. Unamortized discount
   5. Amounts pledged as collateral or otherwise limited as to use [FASB ASC 958-310-50-1; FASB ASC 860-30-50-1A]

H. Contributions, Part III. Statement of Activities

1. Does the NFP distinguish between contributions received with donor-imposed restrictions and those received without donor-imposed restrictions, so that they are reported as donor-restricted support that increases net assets with donor restrictions or support that increases net assets without donor restrictions, respectively?

   [“Pending Content” in FASB ASC 958-605-45-3]

2. If donor-restricted contributions whose restrictions are met in the same reporting period are reported as support within net assets without donor restrictions, is such treatment consistent from period to period, is the policy disclosed, and does the NFP have a similar policy for the reporting of gains and investment income?

   [“Pending Content” in FASB ASC 958-220-45-6; “Pending Content” in FASB ASC 958-605-45-4]

3. If donor-restricted contributions were initially conditional contributions and both the condition and the restriction have been met in the current period, has the NFP reported consistently from period to period and disclosed its accounting policy if it elects to report those contributions as support within net assets without donor restrictions? Note: An NFP may elect this policy without also having to elect it for other donor-restricted contributions or investment gains and income.

   [“Pending Content” in FASB ASC 958-605-45-4B]

4. Does the NFP report receipt of unconditional promises to give with payments due in future periods as donor-restricted support, unless explicit donor stipulations or circumstances surrounding the receipt of the promise make clear that the donor intended the contribution to be used to support activities of the current period?

   [“Pending Content” in FASB ASC 958-605-45-5]

J. Risks and Uncertainties, Part I. General

2. Is an explanation that the preparation of financial statements in conformity with GAAP requires the use of management’s estimates included in the financial statements?

   [FASB ASC 275-10-50-4]

J. Expenses, Part III. Statement of Activities

3. Are payments to affiliated NFPs reported by their functional classification to the extent that it is practicable and reasonable to do so?

   [FASB ASC 958-720-45-26]

4. Are payments to affiliates that cannot be allocated to functions treated as a separate supporting service and reported in the statement of activities as a separate line item, and labeled “unallocated payments to affiliated NFPs”?

   [FASB ASC 958-720-45-26]

R. Fair Value Measurements, Part I. General

Selected financial statement disclosures