Financial Reporting for Not for Profit Organizations

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Michael Rolleri


Nonprofit organizations --Accounting, Accounting --Standards.

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1996 no.4


The stated mission of FASB is to "establish and improve standards or financial reporting tor the guidance and education of the public, including issuers, auditors and users of financial information.” FASB focuses on relevance and reliability of existing and proposed financial information in order to achieve consistency and comparability of data. The guidelines tor accounting and reporting transactions are called accounting standards. The purpose or accounting standards is to assure that financial information is presented in a standardized and structured manner.

Standard setting involves making choices among alternatives, each of which has an unique set of costs and benefits. The costs of a new standard are placed upon the members of the financial reporting community. These members include financial statement preparers and auditors. The costs associated with a new standard are understanding the new accounting requirement, developing new accounting systems, capturing new information, and complying with the new standard. In contrast, the benefits of a new standard recognized by the financial statement users. The benefits associated with a new standard are assuring a standardized and structured presentation of information, improving understandability, and permitting financial statement users the ability to obtain the information they need.

The development of an accounting standard requires that it proceed through a standard setting process. The standard setting process entails a Discussion Memorandum, an Exposure Draft, Due Process, and a Standard of Financial Accounting Statement. The Discussion Memorandum is the basis tor establishing a public hearing on the proposal. The Exposure Draft is a formal public presentation of a proposed standard. Due Process involves hearings and comments of the exposure draft. The Statement of Financial Accounting Standard is the finished product after all discrepancies and issues were resolved.

As of March 1996, FASB has published 117 statements on financial accounting. However, only four statements are pertinent to nonbusiness organizations. The statements on nonbusiness entities are SFAS No.32, SFAS no.93, SFAS no. 116 and SFAS No.117. This fact demonstrates that FASB has failed its mission as it pertains to nonbusiness organizations. They have provided neither guidance nor education on accounting and reporting for these organizations. Nonbusiness organizations have been operating with the same accounting principles that were established in the middle 1960s and early 1970's. Furtnermore, FASB has not improved any accounting standards tor nonbusiness organizations. As a result, there is inconsistency and a lack of comparability of financial information.

Due to the lack of standards and guidance, financial statement users have been subjected to certain costs. The costs, to the financial statement user, of nonstandardized financial statements are inconsistent and incomplete information. The costs associated with incomplete or inconsistent information are decreased comparability and unstandardized presentation.

Statement of Financial Accounting Standard No: 117 Financial Reporting for Not-For-Profit Organizations released by the Financiai Accounting standards Boards represents a significant step in establishing reporting practices for not-for- profit entities. The most important recommendation in this report pertains to financial statement presentation. The statement recommends that a complete set of financial statements consist of the Balance Sheet, the Statement of Changes in Net Assets and the Statement of Cash Flows. These financial statements would be used by all not-for-profit organizations despite the audit guide followed. Despite its recommendations, the report remains in the first stage of the standard setting process.