My PTO stepped over the $100k threshold and now must file Form 990, rather than 990-EZ. (Poor us, I know.)
Does anyone know about SFAS 117? There's a section on net assets where you fill out certain items if you're following SFAS 117, and different items if you're not. Since I've never read SFAS 117, I assumed I wasn't following it, but the items to fill out in that case look completely foreign. Should I read SFAS 117 and then say we are following it? I'm wondering if most PTOs follow it because we don't ever deal with any of the complicated things that huge non-profits do.
It looks like, per the instructions for Parts IV-A and IV-B of 990, I should probably follow SFAS 117 to avoid having to get audited financial statements.
(As a side note: I have a vague impression that the IRS, as part of phasing in the new 990 for next tax year, is expanding the range of groups that can use 990-EZ. But I suppose this doesn't apply for this year.)
Statement of Financial Accounting Standards (SFAS) No. 117 was issued to establish consistency in financial reporting among not-for-profit organizations, which are subject to various American Institute of Certified Public Accountants (AICPA) audit guides. In addition, SFAS No. 117 was designed to close the gap between the statements of not-for-profit and for-profit organizations. The provisions of SFAS No. 117 are intended to override AICPA audit guides and statements of position when the two conflict.
None of the PTO's I've worked with have gotten to that income level, so we haven't checked into this. There's a lot on the Internet, but I don't know how hard or easy it would be for a non-financial person to do it. I'd think it would be difficult to retroactively claim as the financial statements and accounting processes are pretty specific.
So, if I don't follow SFAS 117, my bank balances are supposed to fit in one of these:
Line 70. Capital Stock, Trust Principal, or Current Funds
Line 71. Paid-In or Capital Surplus, or Land, Bldg., and Equipment Fund
Line 72. Retained Earnings or Accumulated Income, Endowment, or Other Funds
Actually, parent groups should be checking the box saying that they are following SFAS 117; I believe it was mandated for virtually all nonprofits something like 10 years ago. There are a couple of types of nonprofits (like credit unions) that are not subject to it, and the IRS doesnâ€™t require it, but if you had a CPA come and perform an audit for you, or prepare your financial statements, they would insist on using SFAS 117. SFAS 117 has more to do with external presentation of financial statements, or how you present them to the public, than how you do day to day accounting.
The most important thing about SFAS 117 for most parent groups is how you classify your net assets (the difference between your assets and liabilitiesâ€”called net worth in the for profit world)â€”they are either unrestricted, temporarily restricted, or permanently restricted. I would guess that for most, you are only going to have unrestricted.
Think about it this wayâ€¦if someone gives you money for a specific purpose during the year, and you donâ€™t spend it all during the year, SFAS 117 provides a way for this section of the balance sheet to show them that you have the money set aside somehow to use it the way it was intended. Thatâ€™s the important part of this.
Hereâ€™s the difference between the three types of net assets. It mostly has to do with restrictions DONORS make when they give you money. It has nothing to do with any board proclamations of how they will use the moneyâ€”thatâ€™s pretty much irrelevant for this.
Unrestricted assets are what you end up with when people give you money without any restrictions as to how you might use it. When you have your big catalog fundraiser, or your bingo night, or collect membership duesâ€”those are typically things that raise money for the general operations of the parent group, and they are therefore unrestricted donations. It doesnâ€™t matter if you say itâ€™s to cover field trips or assemblies or whatever else you have like thatâ€”thatâ€™s just stuff you do as a parent organization.
A permanently restricted net asset arises when the donor specifies that the funds need to be used for something in particular, and basically you have to use the funds for only that purpose. Itâ€™s usually things like endowments that end up classified as permanently restricted. But for a parent group, letâ€™s say that you applied for a grant to build a butterfly garden at your school, and you received the grant, and the grantor said that if you never built the garden, you had to give the money back. You also probably have to give them a report showing how you spent that money. Thatâ€™s a permanently restricted donation. You canâ€™t use that money for anything else. If that grant was for $3,000, and during the school year you only spent $2,000, and you have $1,000 left to finish it next year, that $1,000 would show up as a permanently restricted net asset on your balance sheet. (If you use the whole $3,000 in that school year, you donâ€™t need to worry about itâ€”your net asset is zero.)
Temporarily restricted net assets are in between those two. Thatâ€™s where you get money that is restricted until some event occurs or a period of time passes. I canâ€™t even really think of a realistic example of thisâ€”a playground fund might qualify, depending on the circumstances.
Playground funds are kind of common. What if youâ€™re raising money for a playground? How do donations for that get classified? It depends. Letâ€™s say you have an auction, and you were so successful that the board decided to announce, after the fact, that they would use the money to start a playground fund. Thatâ€™s unrestrictedâ€”the donor didnâ€™t put that restriction on, the board did, and they donâ€™t count for this. Letâ€™s say you have an auction and you specifically advertise it as raising money for your playground to be built in 3 yearsâ€¦thatâ€™s a little more questionable. Those would probably be temporarily restricted donations. Itâ€™s always better, from an accounting/legal standpoint, to leave yourself some options for these types of situations. When you advertise, say the fundraiser is for the playground and other parent group needs. You never know if you will raise more than you need, or if the need will go away.
Anywayâ€”itâ€™s pretty unusual for a parent group to have money left over at the end of the year thatâ€™s to be used for anything more significant than that next yearâ€™s general operations. So, most people can be safe by checking off â€œunrestrictedâ€ and calling it a day.