Not-for-Profit community (Annual reports, 2018). For the

Not-for-Profit Financial Reporting Paper
Habitat for Humanity is a Not for Profit organization that has been around since 1976 and is committed to helping more than 22 million people with building or improving their home for the better interest of the people and the community (Annual reports, 2018). For the fiscal year of 2018 Habitat for Humanity has helped 8.7 million with the addition of 2.2 million people with their living circumstances of building a home for them or improving the home they already exist in. The organization does this with extensive advocacy and training for all that are involved.
In the following paper we will evaluate how the selected not-for-profit’s financial statements conform to Financial Accounting Standards Board, compare the organization’s reporting of pledges and contributions to its reporting of exchange transactions, and how they are recorded, as well as explaining the impact if Habitat for Humanity confers excess economic benefits on disqualified persons.
FASB’s guidance in Statement No. 117, Financial Statements of Not-for-Profit Organizations establishes standards for general-purpose external financial statements provided by not-for-profit organizations. It requires they provide, at the least, a statement of financial position, a statement of activities, and a statement of cash flows. It also requires reporting amounts for the organization’s total assets, liabilities, and net assets in the statement of financial position, reporting the change in an organization’s net assets in the statement of activities, and reporting the change in its cash and cash equivalents in a statement of cash flows, in addition to the classification of an organizations net assets based on whether donor-imposed restrictions exist.
The statement also divides the classifications into areas of permanently restricted, temporarily restricted, and unrestricted and must display these in their statements to which Habitat for Humanity had done so under the net assets in the financial statement. The organization presents consolidated statements of financial position which includes assets, liabilities and net assets, the total for receivables assets and liabilities. Habitat of Humanity also includes the consolidated statement of activities to which each classification is separated with monetary values. The statements that are presented in the statements conform to statement 117.
“The accounting implications of whether a grant is treated as an exchange transaction or a contribution include the timing of when the revenue is recognized, the asset account used for funds to be received in future periods, and the treatment of any restrictions on the funds.” ( Pledges and contributions and exchange transactions are all a form of revenue collection for not-for-profit entities. The donations and pledges are supposed to be received every year, then they are recorded at the present value of their estimated future cash flows. There is also a pledge allowance account. The amount expected for this account is a management decision based on past collection experience, donor credit, and other relevant factors. Exchange transactions are different in that the revenue is recognized after the income is earned. Funds that haven’t been received but are expected to be will be recorded as an asset in accounts receivable. The financial statements, the exchange transactions are separated by function. Pledges and contributions are reported based on the restrictedness: temporarily, permanently, or unrestricted on account of activities.
The financial reporting should include the following financial statements the balance sheet, statement of activities, and statements of cash flow. They should also record contributions and pledges showing net realizable value in the commitments receivable account. For subsequent years, the financial statements will also include a pledge allowance account. Relevant factors are determined for this account such as past collection experience, and donor credit. Some funds haven’t been earned but are expected to be obtained, and these will be recorded as an asset in accounts receivable. Additionally, any exchange transactions are separated by function and will be reflected in the organizations’ financial statements. Pledges and contributions will be reported as follows: Temporarily, permanently, or unrestricted. These pledges and donations are published on the statement of activities.
The activities of Habitat for Humanity are accountable to the general public, donors and volunteers alike rely on the not-for-profit organization to do its due diligence to benefit the people in the society and not to partake in excess economic benefits on disqualified persons. The reputation and standard will depict that the NFP organization is committing fraud. The act of committing fraud can lead to IRS penalty.
IRS penalties will impact the NFP organizational manager, and the disqualified person. According to the IRS section code 4958, charitable organizations are subject to an excise tax of twenty-five percent of the excess benefit imposed on the organizations manager and the disqualified person is also liable to paying the tax (IRS, 2018).

The financial reporting for not-for-profit entities has numerous differences when compared to reporting for for-profit and other types of entities. Through analyzing a not-for-profit’s financial statements, such as Habitat for Humanity’s, one can see how FASB’s guidance in Statement No. 117 affects financial reporting and the difference between their reporting of contributions and exchange transactions.

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