Financial Reporting for not-for-profit organizations

Financial Reporting for not-for-profit organizations

Financial reporting for not for profit organizations is a requirement under the standards of FASB, in articles 116 and 117. Although the objective of profitable and not-for-profit organizations differ, the essence of reporting is a requirement that portrays accountability, transparency and future planning. The reports are meant to guide interested members such as donors, creditors, and members in various decision making purposes. There are no strict regulations or guidelines for the format of the reports that an organization can prepare, still they are required to come up with statements for mentioned reasons. These reports include a Statement of Financial Position, Statement of Activities, Statement of Functional Expenses for Voluntary Health and Welfare Organizations, Statement of Sash Flows and Financial Statement of Disclosures. In addition, these reports have additional notes that explain expound details provided in the statements. Reporting in not-for-profit,non-governmental organizationsdoes not have elements of equity, profits but general financial standing, assets and activities of a particular organization.

The format of the statement is not strictly restricted,the time for reporting is not also provided. For profitable organizations,usually the statements would be prepared once a year at the end of a financial period. The content or focus of the financial statements is usually on the assets, liabilities, net assets, revenues, expenses, gains and losses that occurred within a given period of time. These financial instruments provide details on how the components relate with each other and guide the interested parties in decision making such as liquidity and flexibility of the organization, the need for external financing and its ability to meet its objectives. These tools are also useful in tracking the activities of an organization and how resources have been allocated in the past.

The content in the statements differ from those for profit in the way they treat various types of components and the content in general. Usually, the assets are classified as either restricted support, temporary or unrestricted support, indicating the extent to which the organizations receive support as agreed with the donors or any interested party. A statement of activities would have included decisions with implications of a loss or gain in the financial position. The activities differ among organizations and would usually be classified as major or minor, depending on the objective of the organization in focus. They would include membership recruitment, fundraising and recordkeeping, budgeting, administrative activities, training, maintenance etc. The statement of activities includes all activities as a whole and must include all activities that affect change in all classes of assets.

Statements of Functional Expenses is an alternative for reporting expenses, although they can berecorded under footnotes. They are captured in the general statement of Activities and general expenditures include program Activities, Management and General Fund Raising and Membership Development

Recent amendments

According to FASB, the amendments made to the Cash Flow Statement included the requirement for restricted support by the donors to be used for long term purposes. They are elsewhere stated what they are meant to accomplish for the organization such as purchase of equipment, improvement of property or acquiring new machineries that would further objectives of the organizations. Should the amounts be invested elsewhere, paragraph 19 of the FASB guidelines provides that the arising dividends are not to be recognised as operating receipts. Carmichael, Whittington and Graham (2007) add that the activities including volunteering activities are never to be capitalised in the new requirements of FASB.


Analysis of FASB 117: "Financial Statements Of Not-For-Profit Organizations", viewed 21 February 2012

Carmichael, D. R., Whittington, R., & Graham, L. (2007). Accountants' Handbook: Special industries and special topics. New York: John Wiley and Sons.

Statement of Financial Standards No. 117, viewed 21 February 2012,

Larkin, R F & DiTommaso, M (2012). Wiley Not-for-Profit GAAP 2012: Interpretation and Application of Generally Accepted Accounting Principles. New York: John Wiley and Sons. Ruppel, W (2007). Not-for-profit accounting made easy. New York: John Wiley and Sons.

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