Financial Reporting Review
Analyze the selected not-for-profit’s financial statements to determine if the statements conform to Financial Accounting Standards Board (FASB) guidance in Statement No. 117, Financial Statements of Not-for-Profit Organizations (FASB ASC 958-205-45). Explain the selected organization’s use of the three (3) fund categories. Recommend at least two (2) areas of potential interest to the stakeholder concerning the status of revenue and expenses.
General-purpose financial statements for not-for-profit organizations meant for external users are governed by the Financial Accounting Standards (FAS) 117 by the Financial Accounting Standards Board (FASB). According to FAS 117, all not-for-profit organizations should publish a statement of activities, a statement of financial position, and a statement of cash flows. In addition, FAS 117 requires that not-for-profit organizations’ group assets, revenues, expenses, and gains and losses be based on the presence or absence of restrictions imposed by the organization’s donors. FAS 117 recognizes that financial statements cannot satisfy all external users conclusively in addition to the practical limits on areas like combining dissimilar information in one statement, which would likely introduce obscurity and complications in the intended statement purpose (2). FAS 117 guides not-for-profit organizations on the required standards of reporting.
The selected not-for-profit organization is World Vision, Inc., and its Affiliates. The organization’s financial statements for the financial years ending September 30, 2018, and 2019 were analyzed. World Vision, Inc.’s financial statements for the financial year ending September 30, 2019, and 2018 categorize its income statement into operating revenue, operating expenses, and non-operating activities. Operating revenues primarily consist of contributions, public cash and commodity grants, and in-kind gifts. Operating expenses are divided into international, domestic, and public awareness programs and services comprising management and fundraising. Two areas of potential interest to stakeholders are the net assets with donor restrictions and those without donor restrictions. Similarly, stakeholders would be interested in World Vision, Inc.’s functional expenses related to programs and the related supporting services.
Analyze the organization’s statement of cash flows. Explain the format that the organization utilizes, including any unique areas of emphasis that differ from-GAAP accounting format.
Based on World Vision, Inc.’s statement of cash flows, the organization uses the indirect format. In this format, the cash flow statement begins with the change in net assets. The change in assets is reconciled with cash from operating activities, cash flow from investing activities, and cash flows from financing activities. One of the unique areas of emphasis that differ from the GAAP accounting format is recording the non-cash inventory decrease. The International Financial Reporting Standards (IFRS) only allows First-In-First-Out (FIFO) and the weighted average method in inventory management, while under GAAP, an organization may use Last-In-First-Out (LIFO), FIFO, and the weighted average method (Inventory, 2019). GAAP is rule-based, while the IFRS is largely based on principles, which allows more flexibility to accounts for preparing an organization’s financial statements.
Compare the organization’s reporting of pledges and contributions to its reporting of exchange transactions. Discuss the funds that are utilized.
World Vision, Inc. records contributions as revenue when the giver has provided an unconditional promise to avail the funds and/or assets. The contributions can be in cash, kind, assets, or services. The organization divides the contributions into two main categories, contributions with donor restrictions and contributions without donor restrictions. The organization has also divided its reporting into these two main categories. On the other hand, grant revenue is only recognized as revenue when the contributing party incurs reimbursable program expenses. Exchange transactions occur when one organization receives services or assets or has its liabilities extinguished, and in return, it offers cash, assets, services, or goods of approximately the same value.
World Vision, Inc. exchange portions include amounts held for others in a number of trusts where the organization is a trustee. These exchange portions include the fair value of assets that are held in trust and agreements to pay annuities to donors. The exchange transactions are recorded as the present value of the expected future payments. World Vision, Inc.’s financial statements are in the Consolidated Statement of Financial Position under the non-current liabilities as amounts held for others. Conversely, contributions are under Operating Revenue (Contributions, primary private cash) in the Consolidated Statement of Activities (3).
Assess the fiscal condition of the selected organization utilizing and interpreting financial indicators, using financial ratios that are widely accepted as being indicative of fiscal health. This assessment should also be expanded to include fund-raising analysis, program review, contributions, and grant analysis and revenue analysis.
Liquidity ratios show the ability of an organization to meet its current financial obligations when they fall due. Table 1 shows World Vision, Inc.’s liquidity ratios. The organization’s liquidity ratios exceed the value of 2, meaning it can easily meet its current debt obligations when they become due.
Table 1: Liquidity Ratios
| 2018 | 2019 | Average | |
| Current Ratio | 2.92 | 3.21 | 3.06 |
| Quick Ratio | 2.31 | 2.74 | 2.52 |
Activity ratios show the organization’s ability to use its inventory and assets to generate positive outcomes. Table 2 shows World Vision, Inc.’s activity ratios.
Table 2: Activity Ratios
| 2018 | 2019 | Average | |
| Inventory Turnover Ratio | 31.47 | 78.48 | 54.97 |
| Fixed Assets Turnover Ratio | 10.05 | 11.70 | 10.87 |
Leverage ratios show the level of indebtedness of an organization. Table 3 shows World Vision, Inc.’s debt to total net assets ratio. The organization has very little debt, which shows that it is quite healthy and sustainable in the short to medium term.
Table 3: Leverage Ratio
| 2018 | 2019 | Average | |
| Debt to Total Net Assets Ratio | 9.29% | 8.47% | 8.88% |
Source List
- Statement of Financial Accounting Standards No. 117. (1993). Norwalk: Financial Accounting Standards Board.
- World Vision, Inc. and Affiliates: Consolidated Financial Statements. (2019). Seattle: KPMG LLP.
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Question 
Not-for-Profit Financial Reporting Review
Select one (1) not-for-profit organization in an area of interest to you and review the financial statements and audit report for the organization. The financial statements and audit report of the not-for-profit organization should be readily and publicly available on an active Website.
Financial Reporting Review
Write a three to five (3-5) page paper in which you:
- Analyze the selected not-for-profit’s financial statements to determine if the statements conform to Financial Accounting Standards Board (FASB) guidance in Statement No. 117, Financial Statements of Not-for-Profit Organizations (FASB ASC 958-205-45). Explain the selected organization’s use of the three (3) fund categories. Recommend at least two (2) areas of potential interest to the stakeholder concerning the status of revenue and expenses.
- Analyze the organization’s statement of cash flows. Explain the format that the organization utilizes, including any unique areas of emphasis that differ from-GAAP accounting format.
- Compare the organization’s reporting of pledges and contributions to its reporting of exchange transactions. Discuss the funds that are utilized.
- Assess the fiscal condition of the selected organization utilizing and interpreting financial indicators, using financial ratios that are widely accepted as being indicative of fiscal health. This assessment should also be expanded to include fund-raising analysis, program review, contributions, and grant analysis and revenue analysis.
Your assignment must follow these formatting requirements:
- This course requires use of new Strayer Writing Standards(SWS). The format is different than other Strayer University courses. Please take a moment to review the SWS documentation for details.
- Be typed, double-spaced, using Times New Roman font (size 12), with 1-inch margins on all sides; citations and references must follow SWS or school-specific format. Check with your professor for any additional instructions.
- Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are as follows:
- Evaluate the financial statements and fiscal condition of a not-for-profit organization relative to financial guidelines.