Accountants Care

Karen was the accountant for a client of mine. She had twenty years of experience, starting as the receptionist and working her way up to become an indispensable part of the team. She was quiet and dependable, keeping the invoicing and payroll systems going through changes in legislation, system problems and people’s comings and goings. That is, unless you were trying to get away with anything. If a salesperson tried to get some of next month’s sales recorded in this month for bonus purposes, she had a way of making a grown man feel like a little boy caught with his fingers in the cookie jar. I don’t think she ever put the company before her children and husband, but it came a close second.

Accountants care about where they work. In my experience, they take their jobs personally. If anything goes wrong with the company, they feel it, even if it is something completely out of their control. At the same time, they are the company’s conscience, asking the difficult questions about why the budget was not met or why so much money was spent. In good times, accountants are invisible. In bad times, nobody wants to talk to us.

Last week, I attended a meeting with 15 volunteer treasurers from local churches. It was a three-hour meeting about such things as whether people paid by the church (e.g. musicians, choir directors, replacement ministers, etc.) should be treated as employees or contractors for income tax purposes. We also discussed reporting requirements for charities, budgeting, the disposal of church property and other technical matters. The treasurers then had the responsibility of going back to their churches, implementing any necessary changes and explaining the results to their boards.

As I looked around the table, I saw a lot of caring people. I remembered when my mother was elected treasurer of a volunteer group. The requirements were much simpler back then, but I remember her and my father, who actually had a business degree, spending a week of evenings wading through the mess of what had been done previously. We don’t thank volunteers like these nearly enough.

R-E-S-P-E-C-T - IFRS for Nonprofits

What might make some private companies or non-profit organizations in the United States adopt IFRS?
The eventual adoption of IFRS by small businesses and not-for-profit organizations is likely to be market driven. The IASB is developing a version of IFRS for small and medium-size entities that would minimize complexity and reduce the cost of financial statement preparation, yet allow users of those entities’ financial statements to assess financial position, cash flows, and performance.

That's the AICPA's position on the adoption by non-profit organizations of IFRS (International Financial Reporting Standards). We have the same issue here in Canada. The CICA (Canadian Institute of Chartered Accountants) is asking for input from charities. A number of church accountants convened recently in Toronto to consider the matter. We were unanimous: we like the current fund and deferral methods of accounting.

As it was explained to us, comparability is the goal of IFRS: every organization's financial statements need to be prepared on the same basis as every other organization. There is no provision for non-profits. There is no recognition that a non-profit is a fundamentally different kind of organization.

Fundamentally Different

When you buy a widget from ABC Company, you don't care what they do with the money you gave them. They could put it towards research, pay it out as a commission, dividend it to the owners, whatever. You don't care.

But when someone gives a dollar to a charity, they care where it is spent. They want to know which program it goes to, how much is used in administration and whether part of it has been saved as endowment capital. That's how fund accounting developed. A fund is like that jar in your kitchen you put a little of your pay into every week to save for a vacation. Funds are intuitive and simple. They keep the money sorted by the purpose it was intended for.

Another example: assets and liabilities are currently required to be valued at market value. Interest free loans are very common in charities. Discounting them using some arbitrary rate doesn't make sense in the non-profit world. The lender isn't looking for a monetary return on the loan. They want to support the cause. Charities end up having to set up complicated transactions in order for the "right" accounting result to be achieved under new rules. The donor's / lender's wishes have no effect.

The IFRS people really needed to get to know us before they threw us out with the bathwater! The overriding principles of non-profit accounting are stewardship and integrity: how well the non-profit looked after the resources put at its disposal and how well it fulfilled the funders' instructions. As the professional accountant was ending his IFRS explanation an image flashed into my mind. It was of a married couple sitting down with the financial statements of the Anglican (Episcopal) and United Churches and using financial analysis to decide which one to attend. I couldn't help but laugh.

All we want is a little R-E-S-P-E-C-T!

New Newsletter for Charities

Deloitte has just started a new newsletter called "A State of Change" for Canadian charities and not for profit organizations. Its goal:

With the rapid change in accounting standards, rules and regulations over the past few years and the anticipated changes in the upcoming years, this newsletter is being issued to provide information to assist you in understanding the impact that these changes will have on your organization.

The first issue is filled with changes to accounting and Canada Revenue Agency rules, which is a good thing. I applaud any effort to disseminate these changes in a readable and logical way. Ignorance of the law is never an excuse, but with the constantly changing rules and the nature of volunteer run organizations, it often is the reality.

Thank you, Deloitte!

The Accountant's GiveList

The GiveList is a way of helping people without spending money. In their words,

Times are tight. We know, we know. We've all seen the scary headlines. Too many of the scary headlines. And we're all feeling the pressure in other ways too. But, still, we want to contribute what we can to making the world the better place. The GiveList gives you ideas and inspiration for just that: ways that you contribute without spending or buying. Or maybe giving while buying and spending a little less than usual.

What a wonderful idea. It immediately got me to thinking about how accountants can help. Please add your ideas as a comment to this blog. Let's get everyone talking about it!

Here's my list:

• Do someone's taxes,
• Volunteer at a tax clinic,
• Ask a local charity if they need a treasurer (if they don't need one, I'll bet they know two or three who do),
• Donate gently used winter clothing to a shelter (OK, you don't have to be an accountant to do that one),
• Help a charity set up / improve their accounting system (if you don't have time to be a treasurer),
• Coach a Junior Achievement team and teach some kids about business,
• Hire a temporary student from the AIESEC business student exchange at the time of year when you really need help, so that a local student can get international business experience,
• Teach someone how to balance their bankbook,
• Raise money with a marathon, bikeathon, walkathon or any type of thon involving physical activity (if you're anything like me, it will do you a lot of good!)
  

How Things Look

In a restaurant, good food is what's important to me. I don't care what the place looks like or how the food's arranged on the plate as long as it is a quality meal. My wife, on the other hand, says, "Presentation is half the meal." She wants the pressed linen, the flowers on the table, and the waiter to be attentive. If you're presenting financial statements to the Board of Directors, you should listen to my wife.

Case in point: I was working with a not for profit trade association to re-energize their accounting system. The accountant said that the Board was always criticizing the amount that was spent on consultants. We looked at the financial statements and there it was: a single line called "Consulting" with a large number beside it.

"It's so unfair," the accountant continued. "The Board knows that most of that expense is for the speakers we bring in to do seminars and their cost is covered by participant fees."

"Then let's get the financial statements to tell the same story," I said.

So we separated Participant Fees from Conference Revenues and Speaker Costs from Consulting (as well as the other costs of running seminars) and all of a sudden the cost of consultants looked more reasonable. It was also clear that the association was earning a small, but important amount from its seminars.

The other important change we made was to synchronize the financial statement formats. Previously the President and Treasurer had a detailed income statement and the Board members had summary statements. But the formats were different, making it difficult for the Treasurer to answer questions quickly. With the new format, the detailed statements had the same subtotals as the summary ones, so questions could be answered with more confidence.

My wife is trying very hard not to say, "I told you so."

Not For Profit Red Flags

When I was considering a Controller's position with a charity, a friend warned me that it would limit my career. "Once you move to a charity, you can never go back to a real business," he said.

The Not For Profit (NFP) sector used to be viewed as a backwater, not serious business. The reality is the opposite, particularly from an accounting perspective. Charities and NFP systems have unique challenges. You ignore these red flags at your peril!

First of all, every dollar received by an NFP needs to have a flag attached to it so you can say what happened to that particular dollar. Whether it is a donation, a government grant or membership dues, the person who gave the dollar wants to know what happened to it. Contrast that with your typical business, where once the product or service has been delivered, the owners are free to do whatever they want with the cash.

Secondly, actually delivering a zero bottom line where revenues consistently equal expenses requires smart financial planning. The expenses can be relatively easy to forecast, but revenue is often tricky, particularly when a large portion may come on December 31 when many donors scramble to make their contributions before the year end deadline.

Thirdly, many NFP's are a microcosm of larger Canadian issues, such as west vs. east, rural vs. urban, English vs. French, individual vs. large corporation, and you have to ensure that all of the constituents are fairly represented. Financial reporting can be critical in demonstrating that the organization's resources are being deployed in an even handed manner.

If you understand the red flags, however, working for an NFP can be a rewarding career highlight.