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Financial Reporting Review of a Not-for-Profit Organization

Financial Reporting Review of a Not-for-Profit Organization

The National Audubon Society is the selected not-for-profit organization for discussion in this paper. The organization protects birds and their habitats for the current and future periods through on-the-ground conservation, education, advocacy, and science (Gibbon, 2021). The organization’s sanctuaries and centers are action, research, and conservation exploration hubs. Audubon prepares and reports financial statements as a measure to enhance transparency. The organization’s selection is influenced by the importance of subject engagement, which has been declining in the wake of human selfishness.

National Audubon Society’s Statements Conformation to the FASB Guidance

The organization’s statements conform to the Financial Accounting Standards Board (FASB) guidance provided in statement 117. Audubon offers primary information that is easier for external users to comprehend. The organization prepares various financial reports such as the statement of cash flows, statement of activities, and the statement of financial position to inform multiple stakeholders. The data reported in the financial statements is based on the generally accepted accounting principles in the U.S. Further, the reports conform with FASB ASC 958-205-45 about liabilities and net assets reporting. There is a difference between Audubon and other not-for-profit organizations when the first fund category, unrestricted and restricted net assets, are used, whereby they are similar. No stipulations relating to donors are pegged to the assets when available net assets are considered. The board of directors plays the role of deciding the nature in which the assets will be utilized. However, the assets can be limited through contracts signed with external contributors.

Utilization of the Required Fund Categories

The selected not-for-profit organization utilizes restricted net assets temporarily due to the restrictions attached to them by donors through stipulations. These assets are typically categorized as monetary gifts and other contributions to Audubon. When the assets do not fit in the time frame of donor stipulation, they are classified as unrestricted assets. Notably, temporal restricted net assets entail income from permanently banned endowment funds outside the expenditure appropriations.

Areas of Interest For Stakeholders

Essentially, permanent net assets are the first area of interest for stakeholders. Permanent net assets refer to assets purposed for specific use by donors. Another area of interest for stakeholders is the disclosures of liquidity. Liquidity disclosures are provided in the statement of financial position as cash and cash equivalents. Notably, these are the most liquid assets of the organization and connote the money available to meet their payment obligations in the short term. Alongside the liquid assets, stakeholders should take note of the expenses incurred by the organization. Audubon prepares a separate report on various expenses incurred by the company in attaining multiple purposes. Therefore, the identified liquidity disclosures and list of costs are the two recommended areas of interest to any stakeholder. The two areas can offer insight into the health and performance of the not-for-profit organization to any prospective donor. Further, by paying attention to expenses, stakeholders can understand how well the funds they donate are used to serve the purpose of the organization’s existence.

Preparing the Statement of Cash Flows

The statement of cash flows provides information regarding cash inflows and outflows. These two main items inform the format of the statement. Essentially, the cash inflow section of the statements entails items like donations and sell of an asset, while the cash outflow part contains all expenses incurred by the organization. The analysis of the statement of cash flows for Audubon indicates that the organization employs an indirect approach to preparing the statement. Notably, these methods adjust the net income, resulting in changes in the statement of financial position accounts to establish the cash generated from operations. However, a difference is noted in the dividends paid when the GAAP accounting format is considered. This is so because the paid dividends appear in the operating activities section, unlike in GAAP, where they appear in the financing activities section (Chiang et al., 2020). Additionally, charitable contributions are observed to be recorded in the operating activities in the statement. Other items remain consistent with the format presented by GAAP.

Audubon’s Pledges and Contributions and Exchange Transactions Reports

The National Society of Audubon utilizes the consolidated statement of activities to report pledges and contributions. The two items are classified into restricted, temporary, and permanently restricted funds. Pledges and donations are calculated under operating activities with investments, earned income, and royalties to arrive at the total support sum, gains, and revenues. The organization reports exchange transactions as other transactions in the consolidated statement of activities, while other transactions can be traced to the operating indicator. Over 80% of the organization’s expenses are conservation programs supported by grants, contributions, and bequests. Any income generated from their activities is directed towards sponsoring fundraisers to get more donations to support their conservation programs. Income that arises from investment is directed towards meeting the organization’s and general management’s day-to-day expenses.

The Fiscal Condition of the National Society of Audubon

The income raised from contributions is significant for the National Society of Audubon. The organization has excellent financial health as the contribution income is way higher than operating expenses. The value of the working capital ratio stands at 3.56, which supports the assertion that the organization has excellent financial performance regarding liquidity. Other important metrics can be considered to evaluate the performance of the organization. For instance, the company’s net assets stood at $480,169,733 in its most recent fiscal period.

Further, the organization has 88% public support based on the organization’s 990 forms. The value of the organization’s current ratio is 14.47, which is very high, indicating an excellent performance regarding the ability to meet its obligations as and when they fall due (Coldren, 2022). The program review of Audubon indicates an almost 100% score, whereby most of its programs indicate high levels of transparency and accountability. Over 110 thousand dollars were raised in grants and contributions to further their conservation programs. The financial health is overall sound, and as a recommendation to improve it even further, they should consider cutting down costs in operating expenses.

Conclusion

In conclusion, the National Society of Audubon is a not-for-profit organization specializing in protecting and conserving various bird species through protecting their natural habitats. The organization raises revenue through contributions and grants from donors and well-wishers to support its conservation programs. The grants come with stipulations from donors sometimes. A large portion of the income is spent on various conservation programs worldwide, which has seen its programs being rated high globally. The programs have a rating of 92.44, which is higher than that of other not-for-profit organizations. The programs also have been placed high on the scale of transparency and accountability. Thus, more good performance from the organization will be expected based on the analysis conducted above.

References

Chiang, S., Kleinman, G., & Lee, P. (2020). The effect of auditor industry specialization and board independence on the cash flow reporting classification choices under IFRS: Evidence from Taiwan. International Journal of Accounting & Information Management. https://doi.org/10.1108/IJAIM-07-2019-0084

Coldren, C. (2022). Citizen Science and the Pandemic: A Case Study of the Christmas Bird Count. Citizen Science: Theory and Practice7(1).

Gibbon, J. (2021). Rachel O’Connor, MESM (Environmental Defense Fund), Haley Paul, MS (National Audubon Society), & Christopher Kuzdas, Ph. D.(Environmental Defense Fund).

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Question 


Overview (Requirements attached)
Not-for-profit (NFP) organizations differ from governmental entities because they lack the authority of law to generate revenues and have greater flexibility in administering their budgets.

Financial Reporting Review of a Not-for-Profit Organization

Financial Reporting Review of a Not-for-Profit Organization

Select one NFP organization in an area of interest to you and review their financial statements and audit report. The NFP organization selected must have its financial statements and audit report publicly available on its website.

Instructions
Write a 3–5 page paper in which you do the following:

Determine if the NFP’s statements conform to the FASB guidance. Explain how the selected NFP uses the required fund categories and recommend at least two areas of potential interest to stakeholders concerning the NFP’s revenue and expense status.
Analyze the selected NFPs’ financial statements to determine if the statements conform to the Financial Accounting Standards Board (FASB) guidance from not-for-profits. (Note: You must click “Accept” to see the guidance.)
As part of the analysis, explain how the selected NFP organization uses the required fund categories and recommend at least two areas of potential interest to stakeholders concerning the NFP’s revenue and expense status.
Explain the format utilized to prepare the Statement of Cash Flows, pointing out at least two areas of emphasis that differ from the GAAP accounting format.
The financial statements of NFP organizations include a Statement of Cash Flows.
Analyze this Statement of Cash Flows to explain the format utilized.
Point out any unique areas of emphasis that differ from the GAAP accounting format.
Compare the organization’s reporting of pledges and contributions to its reporting of exchange transactions, discussing at least three of the funds used.
NFP organizations report pledges and contributions in addition to reporting exchange transactions.
Assess the fiscal condition of the selected NFP organization, interpreting financial indicators specific to NFPs and financial ratios widely accepted as indicative of budgetary health.

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