Financial Reporting -Finest Art Gallery

Finest Art Gallery (Finest) is a major art gallery in Vancouver. Finest has the largest collection of art in Canada and has five major exhibits a year. Finest is a nonprofit organization with funding received primarily from private contributors and government grants. The board of directors turns over its members every three years. A new board was just announced for 2016 to 2019. The new board has a number of younger members who have rejuvenated a previous idea to expand a new section of the gallery for the work of children. This would require major fund-raising over the next few years. It is anticipated that this addition would attract a wider audience to the gallery and encourage young children to become interested in art at an early age. The new board, although energetic and ambitious, lacks knowledge of accounting. Board members were recruited for their marketing skills and love of art. They have asked you, CA, to assist them over the next few months to select accounting policies and provide recommendations for changes to their existing policies. They want to comply with any CICA Handbook recommendations for non-profit organizations, but are not familiar with the Handbook's content. You have committed to preparing a report for the next board meeting outlining specific accounting policies. If you recommend any changes, they must be fully supported. The board is concerned with the costs involved with preparing financial statements and wants to minimize these costs. After the meeting with the board of directors you sat down and reviewed their financial statements for the year ended March 31, 2016. Notes from your review are included below. A set of financial statements has been provided to any donors who requested them in the past. In addition, government agencies require a set of audited financial statements as a requirement for government grants.

NOTES TAKEN FROM A REVIEW OF THE 2016 FINANCIAL STATEMENTS

1. The financial statements include a Statement of Income and Expenditures and a Statement of Financial Position. A Cash Flow Statement was not prepared since it was felt that it does not provide meaningful information.

2. Revenues for 2016 included the following: Memberships $ 600,000 Admission fees 800,000 Government grants 2,000,000 Contributions 450,000 Endowment fund revenue 950,000

3. Admission fees are recognized as money is collected. Contributions are recognized when a pledge is made by the donor. Notes to the financial statements segregate the number of restricted and unrestricted contributions. Restricted funds include any amounts donated for a specific purpose and amounts segregated by the board for future expansion or special projects.

4. All capital assets are recorded at a dollar to have a nominal amount provided on the financial statements. No amortization is taken on these assets. A recent review of the capital assets indicated the following items. The amounts were estimated by one of the board of directors: Office equipment $ 500,000 Automobiles 70,000 Facilities 10,000,000 Artwork unable to estimate

5. During 2016 the roof was replaced on the art gallery. The cost of this work was $260,000. This amount was expensed. In addition, a new air-conditioning unit was installed to protect the artwork from damages clue to temperature changes. The cost was $300,000. To finance die purchase of the new air-conditioning system, a piece of artwork was sold.

6. Volunteer Services are not recorded.

7. For fundraising, a portion of the advertising and promotion costs incurred are allocated to education expense each year.

Please use the non-for-profit management to analysis the following questions:

Identify the problem areas and make recommendations:

Report addressing the various issues: