Wiley GAAP 2008

Concepts, Rules, and Examples

The Reporting Entity

Not‐for‐profit organizations were exempted from the provisions of FAS 141 and FAS 142. Consequently the financial statement preparer must consider the applicability of SOP 94‐3, Reporting of Related Entities by Not‐for‐Profit Organizations, in determining the reporting entity. SOP 94‐3 provides guidance on reporting investments in majority‐owned for‐profit subsidiaries, investments in common stock in which the not‐for‐profit organization owns a 50% or less voting interest, and certain relationships with other not‐for‐profit organizations.

If a not‐for‐profit organization has a controlling financial interest in a for‐profit organization (generally a majority voting interest), it follows the standards in ARB 51, Consolidated Financial Statements, as amended by FAS 94, Consolidation of All Majority Owned Subsidiaries. Not‐for‐profit organizations as defined in FAS 117 are specifically exempted from following the consolidations provisions of FIN 46(R), Consolidation of Variable Interest Entities. FIN 46(R) does, however, include an anti‐abuse provision that provides that the scope exemption does not apply if the not‐for‐profit organization is being used by a business enterprise in a manner similar to a variable interest entity in order to circumvent FIN 46(R). Variable interest entities are discussed at length in Chapters 13 and 16.

If a not‐for‐profit organization has significant influence over the operating and financial policies ...