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Appendix 1
Financial Statements and Notes--Samples
The following financial statements and notes represent the results of a broad range of transactions of a central administrative office/pastoral center/chancery of a diocese. However, it is not all-inclusive for presentation of financial statements in accordance with generally accepted accounting principles in the United States of America.
Please refer to the appropriate sections of Practitioners Publishing Company's Guide to Preparing Nonprofit Financial Statements and Nonprofit Financial Statements Illustrations and Trends for specific financial statement treatments of transactions and appropriate note disclosures for items not included in these samples.
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FINANCIAL REPORTING
In addition to financial reporting requirements resulting from outside debt arrangements, any state and local regulatory requirements, and other Church Norms, dioceses should provide periodic communications to the Christian-faithful concerning the financial position and the results of activities of the Central Administrative Offices/Pastoral Center/Chancery offices. These periodic financial reports should be in a format and provide sufficient information to enable the Christian-faithful to understand and appreciate the stewardship that the diocese exercises with respect to the funds entrusted to it by the Christian-faithful.
Each diocese should consult with their diocesan consultative bodies, especially the diocesan Financial Council, to determine the frequency, format, content and distribution channels for these financial reports. These consultations will produce many and varied options to accomplish these financial communications. However, in addition to generally accepted reporting practices, each diocese should endeavor to accomplish reasonable norms of accountability and transparency with respect to the financial activities of the diocesan offices.
Central Administrative Office of Sample Diocese
Notes to Financial Statements
June 30, xxx2 and xxx1
NOTE A—ORGANIZATION
The Central Administrative Office of the Roman Catholic (Arch)diocese of xxx (CAO) provides programs and services to parishes, schools and other Catholic organizations in the xxx (describe geographic area). The CAO includes the operations of xxx, xxx and xxx (describe major components). The CAO does not include (describe major components).
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
1. Method of Accounting
The financial statements have been prepared on the accrual basis of accounting.
2. Basis of Presentation
The accompanying financial statements include the financial activities of the departments and offices that comprise the CAO. All significant interoffice transactions have been eliminated.
The financial statements of the Diocese are presented in accordance with the Audit and Accounting Guide for Not-for-Profit Organizations, issued by the American Institute of Certified Public Accountants. The guide states that net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Diocese and changes therein are classified and reported as follows:
Unrestricted net assets—Includes net assets that are not subject to donor-imposed restrictions.
Temporarily restricted net assets—Includes gifts and other amounts for which donor-imposed restrictions have not been met and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted.
Permanently restricted net assets—Includes gifts and pledges that require, by donor restriction, that the corpus be invested in perpetuity and that only the income be made available for program operations in accordance with donor restrictions.
3. Investment Income
Investment income includes interest and dividends on investments, as well as both (1) the realized gains and losses on investment transactions and (2) unrealized gains and losses from changes in the market value of investments.
Realized gains and losses on disposition of investment securities are determined using average cost and transactions are recorded on a trade date basis. Net realized gains on disposition of investments for the years ended June 30, xxx2 and xxx1, were $X,XXX and $X,XXX, respectively.
Components of investment income are as follows:
4. Depreciation Expense
Depreciation expense is computed using the straight-line method over the estimated remaining useful lives of the assets, ranging from three to sixty-five years. Amortization of cemetery land, and cemetery and mausoleum development costs is computed (using the weighted average cost method) as graves are sold and is included in cost of sales. [Omit the second sentence if the cemeteries are not included.]
5. Contributed Services
Support arising from contributed services of certain personnel, if significant, has been recognized in the accompanying combined statement of activity. The computation of the value of the contribution of these services represents the difference between the stipends and other amounts paid to or on behalf of the religious personnel and the comparable compensation that would be paid to lay persons if lay persons were to occupy these positions. No computation is made for positions that can be held only by religious personnel. Contributed services of $X,XXX and $X,XXX for the years ended June 30, xxx2 and xxx1, respectively, are recorded as revenues in rent, royalties, fees and other income. These amounts are offset by expenses of the same amount, primarily included in educational and formational services.
6. Cemetery and Mausoleum Revenue
Sales are generated through two sales programs—"at-need" and "pre-need" programs—with each contract carrying the same terms and conditions. All sales are made by an outside agency.
Sales and cost of sales relating to all at-need sales contracts, as well as grave plots, crypts, and niches for all pre-need sale contracts, are recognized at the time of the sale. The sales and cost of sales relating to resale products and services are deferred and recognized at fulfillment. All contracts in which patrons have not made payments for a six-month period are cancelable. All cancellations relating to current year sales are netted against sales; other cancellations are treated as bad debt expense.
7. Revocable Living Trusts and Bequests
The Diocese has received certain pledges of net estate assets characterized as living trusts or bequests by will. As it is not practicable to determine a value for the gifts and bequests, and because the trusts are revocable at the discretion of the trustor, the aggregate value of these trusts is not reported on the accompanying statement.
8. Income Taxes
The Diocese is exempt from federal income taxes under sections 501(c)(3) of the Internal Revenue Code and sections xxxx of the xxxx Code [insert state statute], respectively.
NOTE X—ACCOUNTS RECEIVABLE
NOTE X—LOANS AND NOTES RECEIVABLE
NOTE X—PENSION PLANS—PRIESTS
Diocesan priests are covered by a defined benefit pension plan (which operates as a multi-employer plan). The plan is noncontributory for the participants. At xxxx 30, xxx2 (latest valuation date) and xxx1, the present value of future benefits was approximately $XX,XXX,XXX and $XX,XXX,XXX, respectively, using an assumed rate of return of x% in xxx2 and xxx1. At June 30, xxx2 and xxx1, the market value of assets available for plan benefits was approximately $XX,XXX,XXX and $XX,XXX,XXX, respectively. Amounts contributed by the CAO to fund this plan were $XXX,XXX and $XXX,XXX in xxx2 and xxx1, respectively.
NOTE X—PENSION PLAN—EMPLOYEES
All full-time, non-priest employees are enrolled in the Money Purchase Retirement Plan, which is a cash balance type plan (which operates as a multi-employer plan). The plan is noncontributory for employees, and employer contributions are x% of each participant's annual earnings and x% interest credited to beginning-of-year account balances. This plan is not subject to ERISA funding requirements. Amounts charged to pension cost for CAO employees during xxx2 and xxx1 were $XXX,XXX and $XXX,XXX, respectively.
NOTE X—POST-RETIREMENT BENEFITS
The Diocese sponsors a post-retirement Medicare supplemental plan for retired priests who are eligible to receive Medicare.
The plan pays medical costs not covered by Parts A and B of Medicare. The plan assumes that the priest has full Medicare coverage. In addition, the plan pays x% of prescription drug costs. The maximum annual payout is $X,XXX.
An actuary performs an analysis of per-capita claims costs and premiums on a calendar year basis. Since plan experience with regard to claims costs is limited due to the small size of the group, the actuary uses retiree premiums as the basis for estimating future claim costs.
The transition amount for the unrecognized net obligation is amortized on a straight-line basis over x years.
The accrued post-retirement benefit cost is recorded on the statement of financial position.
The Diocese has adopted Statement of Financial Accounting Standards No. 132, Employers' Disclosures About Pensions and Other Postretirement Benefits, which sets forth employers' financial statement disclosure requirements regarding pension and other post-retirement benefit plans.
NOTE X—DEPOSITS PAYABLE TO PARISHES
Deposits bear interest at rates from 5 to 6 to 7%. Interest is calculated quarterly.
NOTE X—HELD FOR PARISHES AND INSTITUTIONS
Funds held in this category are invested in the Diocesan Investment Pool (see Note A).
NOTE X—RELATED PARTIES
The Diocese is a member of and participates in a captive mutual insurance company, xxxx, with certain other Roman Catholic dioceses and archdioceses in the xxxx. Xxxxx primarily provides general and auto liability coverage to its members. All members were committed to remain in xxxx through July 1, xxxx, after which members may give an 18-month notice of their intent to withdraw from xxxx. During that notice period, the withdrawing member's premiums will be adjusted to cover the losses projected through the withdrawal date. Members have made an initial investment in and pay premiums to xxxx.
Under certain circumstances, further amounts may be assessed by xxxx in order to maintain minimum capitalization and reserve requirements. As of June 30, xxxx, no such assessments were required.
The Diocese is a Trustor of and participates in a multi-employer health plan, xxxx, with various other nonprofit religious organizations of the Roman Catholic Church. Xxxx covers medical expenses that are medically necessary to its members. Under certain circumstances, further amounts may be assessed by xxxx in order to maintain minimum reserve requirements in the trust fund. No further assessments have been made by xxxx and there are no amounts payable with regard to past assessments as of June 30, xxxx.
NOTE X—COMMITMENTS AND CONTINGENCIES
The Diocese is subject to various commitments and contingent liabilities, including general litigation. Various lawsuits and claims are pending against the Diocese, the majority of which are subject to coverage under the Diocese's insurance programs. While amounts claimed in some cases are substantial, management believes that the resolution of such matters will not have a material impact on the financial condition of the Diocese.