The Assessment (aka Case Questions)
Still a bit confused, but fast approaching your deadline, you begin to write your assessment memo for Dana. In your memo, you address the following questions/items:
- What is a 501(c) (3) organization? Describe any advantages associated with this type of organization. Describe any restrictions associated with this type of organization.
- Review the pertinent paragraphs of the FASB ASC 958-225-45. Do you agree with Dana that the Cancer Walk gross proceeds and expenses should not be reported on the books of the Cancer Fight Society? In your response please cite the most up-to-date applicable accounting standards/guidance and connect to specific case facts.
- Conduct an online research and define ‘‘real earnings management.’’ Do you feel the Cancer Fight Society’s treatment of the Cancer Walk meets the definition of real earnings management? Why or why not?
- What incentives does the organization have for only reporting the net proceeds from the special events?
- Using the Society’s books presented in the case, calculate and document the key expense ratios (i.e., BBB ratios in Exhibit 1a and the Charity Navigator efficiency ratios from Exhibit 1b) under the current methodology (net) followed by Dana for both 2010 and 2011:
- Program Expense Ratio;
- Fundraising Expense Ratio;
- Fundraising Efficiency Ratio;
- Administrative Expense Ratio
- Comment on how do you think gross accounting (i.e. recording the aggregate gross revenue from the Cancer Walk along with the expenses) would impact the ratios and bottom line in #5? Would they improve or decline?
- Assume the years of the case are much later and close to the release of the FASB ASU 2016-14 Topic 958, Presentation of Financial Statements of Not-for-Profit Entities (See course Module content for week 2). Summarize for Dana how the new guidance would impact the presentation of the Society’s existing financial statements provided in this case.
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