Perspectives

February 2004

API’s Complete Guide to Accounting Procedures for Non-Profit Organizations

Written and published by Accountants for the Public Interest, Baltimore, Md. (410-837-6533; fax 410-837-6532), $28
Reviewed by Kenneth R. Cerini

It is estimated that some 60,000 nonprofit organizations are operating in New York State. While many of them have sophisticated accounting systems and extensive internal control environments, many more small and medium-sized organizations lack the resources, staff, and expertise to handle the intricacies of nonprofit accounting. Accountants for the Public Interest (API) has created this guide to assist accounting and business professionals who volunteer their time and expertise to the nonprofit sector.

The Guide boldly tries to encapsulate the qualities, laws, control issues, and accounting principles that govern and define the nonprofit sector within a mere 88 pages, and the results are mixed. It does a good job of outlining the distinctive qualities of nonprofits, discussing various characteristics that distinguish them from their for-profit brethren. This is helpful in showing accountants with little or no nonprofit experience how traditional strategies that work in the for-profit world may be less effective in the nonprofit world because nonprofits face different challenges and often have more nonfiscal concerns.

The Guide also does a fairly good job of discussing some basic laws surrounding nonprofit organizations. While this area may get a little technical, it covers substantial territory that is a must for anyone guiding a nonprofit organization; some knowledge of basic nonprofit law is essential to avoiding potential pitfalls that could cost an organization its exempt status. But the Guide does not even touch upon some tax-related issues that plague many unsuspecting organizations and usually permeate lists of frequently asked nonprofit questions. For example, the Guide is silent on such issues as quid pro quo rules, nonprofit raffles, and intermediate sanctions; it also lacks sufficient coverage of the unrelated business income rules.

The Guide tries to cover the nonprofit control environment, working with the board, and accounting issues in a little over 20 pages. In contrast, the AICPA’s Audit and Accounting Guide for not-for-profit organizations needed nearly 500 pages, and the AICPA issued an additional 94-page audit risk alert to keep practitioners up to speed on new developments. While the API’s Guide is not intended to make a reader an expert in the field of nonprofit accounting, it lacks sufficient depth to make it a significant resource to accountants working with any but the most basic of organizations. It touches on contributions (unrestricted, temporarily restricted, and permanently restricted), but it does not discuss the proper accounting for pledges, receivable, and split-interest gifts. Nor does it address other forms of revenue and the issues they pose, such as deficit funded contracts, enhancement contracts, and fee-for-service income. These types of revenue streams are typical of government-funded contracts and grants, which are commonplace in the nonprofit arena. Each has positives and negatives that the accountant must be knowledgeable of in order to be a useful resource to an organization.

Finally, while the illustrative financial statements provide insight into certain aspects of SFAS 117, Financial Statements of Not-for-Profit Organizations, they are incomplete and would not pass peer review because significant disclosures to the financial statements are missing. In addition, the depicted Statement of Functional Expenses does not appear realistic, because there are no non–salary-related expenses charged to general and administration.

While this Guide possesses nuggets of worthwhile knowledge, and is written in a very easy to read format that should require only an hour or two to traverse, its overall lack of substance renders it of little use to most accountants and the organizations they are looking to help. While it costs less than a full-day beginner-level course, most accountants would be better served by eight hours of concentrated knowledge.

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