American Heart Association, Inc. Financial Reporting Review

Introduction

The American Heart Association, Inc. is a charity organization that fosters heart care to reduce disabilities and deaths caused by cardiovascular diseases and stroke. The organization released its financial reports on June 30th, 2017. This paper will evaluate the report's compliance with Financial Accounting Standards Board (FASB) guidance in statement No. 117 and FASB ASC 958-205-45, analyze the financial cash flows, assess the fiscal condition of the organization and compare the organization's reporting of pledges and contributions to its reporting of exchange transactions.

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The Report's Compliance with FASB Statement NO. 117 and FASB ASC 958-205-45

The American Heart Association, Inc. financial report starts with a statement of activities which has assets with donor restrictions, those with temporary donor restrictions and another column of assets with no donor restrictions. The report contains the expenses used in program and supporting services for activities with and without donor restrictions. The composition of net assets with donor restrictions on 30th June are indicated, and their impact on resource utilization. The financial report also contains details on how American Heart Association, Inc. managed its liquid assets, and qualitative information on availability on the organization's availability of financial assets. In compliance with Statement No. 117, the report contains provisions and expanded the description of cash flow from financing information to include donor-restricted funds that must be used for long-term purposes. The report also has a segment on functional outlays that reports both functional and natural classifications.

The financial report also has a segment on investments made by the company. These investments are made for the purpose of the organization's existence rather for economic reasons and it is recorded in order to provide a comparable measure of investments returns across all not-for-profit organizations.

The three fund categories used by American Heart Association, Inc. are those with donor restriction, those with temporary donor restriction and those with no donor restrictions. Donor restriction means impositions placed by donors on how their contributions should be used. Stakeholders should use functional expenses and operating cash flows. Operating cash flows help the stakeholders understand the fiscal strength of the organization and the functional expenses shows the stakeholders that the assets are being used according to the organization's policies to achieve its objectives.

American Heart Association, Inc. Cash Flow and Difference From Gaap Accounting Format

FASB guidelines differ with Generally Accepted Accounting Principle (GAAP) in order to enhance the understanding of a financial report by donors and other users of NFP's financial statement and minimize complexities for preparer and user.

American Heart Association, Inc. uses an indirect format when presenting the cash flow. The indirect format contains investing activities, financing activities, and operational activities. In the American Heart Association, Inc.'s cash flow, investing activities comprises of all information regarding amounts of money used to acquire assets through the sale of other assets. Financing activities entail reports on amounts of cash used to settle debts or received by incurring liabilities. Operating activities segment includes non-cash items, donated property, net appreciation and depreciation of investments are included in the operating activities changes in operating assets and liabilities and losses and gains in fixed assets.

When preparing cash flow, FASB ASC 958-205-45 format differs from GAAP format in the distinction of permanent and temporary donor restrictions. This eliminates complexity in the cash flow statement. Also, the cash flow statement is accompanied by notes which offer insight into the nature of accounts, amounts, and effects of donor restrictions.

Comparison of American Heart Association, Inc. Pledges and Contribution to Reports of Exchange Transactions

A contribution is an unconditional transfer of money or asset to an organization or person in a voluntary nonreciprocal transfer. A pledge is a promise to give money or asset to someone or an entity. In the American Heart Association, Inc.'s financial report, contributions, and pledges are recorded as unrestricted, temporary restricted and permanent restricted. Exchange transactions are reciprocal transfers in which one party receives an asset and gives the giving party another asset of similar value.

The main difference noted from the financial report is that in contributions and pledges, the entity clarifies the assets is solicited as a contribution while in an exchange transaction, the entity declares the asset is intended for particular uses. In contribution, the donor does not restrict how the asset will be used but in an exchange transaction, the donor restricts how the asset will be used. In contribution, the records show that donors can contribute any amount of money they want while in exchange transaction the donor must provide something that equals in value to the asset given by the charity organization. In exchange transaction, American Heart Association, Inc. can be penalized for failing to utilize the asset as it was intended for by the donor while in contributions and pledges, the entity can utilize the donation as it sees fit provided it does not misappropriate it.

Fiscal Status of American Heart Association, Inc.

The fiscal status of the American Heart Association, Inc. can be determined by evaluating income statement indicators and balance sheet indicators. The indicators are revenue reliability, consistent surpluses, and full cost coverage. Balance sheet indicators include the ability to manage liabilities, maintain facilities, and appropriate liquidity.

Revenue reliability is the record of an organization's ability to bring in revenue consistently and reliably. The American Heart Association, Inc. shows an increase in the number of dollars it brought in the 30th of June, 2017 reports than what was recorded in 2016. Looking at the statement of activities of the financial report, the total revenue of the NFP was $911,987 when compared with 2016 total of $863,354. The differences in the revenue between the fiscal year 2017 and fiscal year 2016 shows that the NFP enjoys consistent surpluses which is essential in covering the organization's expenses.

The ability to manage debts is measured by doing a percentage of the total liabilities and the total assets. If the percentage nears 50%, then the organization ability to pay off its debts is questionable. In this case, the percentage is 33.42%. ability to manage facilities is determined by the amount of reserve cash left to improve and replace assets. The liquidity is found by applying the following ratios: liquids funds indicator= (total net assets less restricted net assets less fixed assets) divided by average monthly expenses. The liquids funds indicator, in this case, is 10.1. savings indicator is another way of checking the fiscal health of an organization. Savings indicator = (revenue-expenses) divided by total expenses. the debt ratio is also used to determine the proportion of assets to its debts. The debt ratio is found by dividing the average total debt by average total assets.