Financial Statements: Accountability

SFAS 116 and SFAS 117 were created to improve accountability among not-for-profit and government entities. These improvements should simplify the structure of financial statements by making them understandable to both the financial and non-financial audience. SFAS 116 establishes the accounting standards for contributions made and received. All entities that make or receive contributions are required to report the contributions received at fair market value as revenue in the period in which they were received. Likewise, any contributions made must be recognized at fair market value but as expenses in the period in which they were made.

It further requires that not-for-profit organizations classify contributions that increase net assets as either permanently restricted, temporarily restricted, or unrestricted (FASB, 1993).

SFAS 117 concentrates on the external financial statements for not-for-profit organizations. The purpose is to “enhance the relevance, understandability, and comparability of financial statements issued by those organizations” (FASB, 1993) and “requires that all not-for-profit organizations provide a statement of financial position, statement of activities, and statement of cash flows” (FASB, 1993).

While the individual accounting processes may be complicated, they will help to promote financial accountability and transparency within those organizations.

References

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