National Association of Accountants

Each December the incoming members of the board of directors of the National Association of Accountants (NAA) met in joint session with the outgoing board as a means of smoothing the transition from one administration to another. At the meeting in December 1995, questions were raised about whether the board had adhered to the general policies of the association. The ensuing discussion became quite heated.

NAA was a nonprofit professional association with 3,000 members. The association published two professional journals, arranged an annual meeting and several regional meetings, appointed committees that developed positions on various topics of interest to the membership, and represented the members before standards-setting bodies.

The operating activities of the association were managed by George Tremble, its executive secretary. Mr. Tremble reported to the board of directors. The board consisted of four officers and seven other members. Six members of the 1996 board (i.e., the board that assumed responsibility on January 1, 1996) were also on the 1995 board; the other five members were newly elected. The president served a one-year term.

The financial policy of the association was that each year should "stand on its own feet"; that is, expenses of the year should approximately equal the revenues of the year. If there was a deficit in 1995, this amount would normally be made up by a dues increase in 1996.

At the meeting in December 1995, Mr. Tremble presented an estimated income statement for 1995 (Exhibit 1). Although some of the December transactions were necessarily estimated, Mr. Tremble assured the board that the actual totals for the year would closely approximate the numbers shown.

Wilma Fosdick, one of the newly elected board members, raised a question about the foundation grant of $54,000. She questioned whether this item should be counted as revenue. If it were excluded, there was a deficit; and this showed that the 1995 board had, in effect, eaten into reserves and thus made it more difficult to provide the level of service that the members had a right to expect in 1996. This led to detailed questions about items on the income statement, which brought forth the following information from Mr. Tremble.

1. In 1995 NAA received a $54,000 cash grant the Beckwith Foundation for the purpose of financing a symposium to be held in June 1996. During 1995 approximately $2,700 was spent in preliminary planning for this symposium and was included Committee Meeting Expenses. When asked why $54,000 had been recorded as revenue in 1995 than in 1996, Mr. Tremble said that the grant was obtained entirely by the initiative and persuasiveness of the 1995 president, so 1995 should be given credit for it. Further, although the grant was intended to finance the symposium, there was no legal requirement that the symposium be held; if for any reason it was not held, the money would be used for the general operations of the association.

Exhibit 1

Estimated Income Statement Year Ending December 31, 1995

Revenues: Membership dues	$287,500
Journal subscriptions	31,000
Publication sales	11,900
Foundation grant	54,000
1994 annual meeting, profit	3,400
Total revenues	387,800
Expenses: Printing and mailing publications	92,400
Committee meeting expense	49,200
Annual meeting advance	10,800
Desktop publishing system	27,000
Administrative salaries and expenses	171,500
Miscellaneous	25,000
Total expenses	375,900
Surplus	$11,900

2. In early December 1995 the association took delivery of, and paid for, a new desktop publishing system costing $27,000. This system would greatly simplify the work of preparing membership lists, correspondence, and manuscripts submitted for publication. Except for this new system, the typewriters, desks, and other equipment in the association office were quite old.

3. Ordinarily, members paid their dues during the first few months of the year. Because of the need to raise cash to finance the purchase of the desktop publishing system, the association announced in September 1995 that members who paid their 1996 dues before December 15, 1995, would receive a free copy of the book of papers presented at the special symposium to be held in June 1996. The approximate per-copy cost of publishing this book was $16, and it was expected to be sold for $18. Consequently, $32,400 of 1996 dues were received by December 15, 1995; they were included in a 1995 revenue.

4. In July 1995 the association sent a membership directory to members. Its long- standing practice was to publish such a directory every two years. The cost of preparing and printing this directory was $23,200. Of the 4,000 copies printed, 3,000 were mailed to members in 1995. The remaining 1,000 were held to meet the needs of new members who would join before the next directory came out; they would receive a free copy of the directory when they joined.

5. Members received the association's journals at no extra cost, as a part of the membership privileges. Some libraries and other nonmembers also subscribed to the journals. The $31,000 reported as subscription revenue was the cash received in 1995. Of this amount, about $8,100 was for journals that would be delivered in 1996. Offsetting this was $5,400 of subscription revenue received in 1994 for journals delivered in 1995; this $5,400 had been reported as 1994 revenue.

6. The association had advanced $10,800 to the committee responsible for planning the 1995 annual meeting held in late November. This amount was used for preliminary expenses, and was included as 1995 Committee Meeting Expense. Registration fees at the annual meeting were set so as to cover all convention costs, so that it was expected that the $10,800, plus any profit, would be returned to the association after the committee had finished paying the convention bills. The 1994 convention had resulted in a $3,400 profit, but the results of the 1995 convention were not known, although the revenues and expenses were about as anticipated.

Questions

1. Did the association have an excess (revenues greater than expenses) or a deficit (expenses greater than revenues) in 1995?
2. Should the amount of surplus or deficit in 1995 affect the decision to change the annual dues for 1996?

Answer pls