NPF ACCOUNTING

NpF Accounting

Executive Summary

For many years, not-for-profit organizations had very little in the form of official pronouncements from FASB. Because of the variety of types of organizations that fall under the not-for-profit umbrella, there were at least four sets of rules that applied. Consequently, people interested in contributing to these organizations had difficulty comparing how dues, fees and contributions were being spent. Finally the Financial Accounting Standards Board (FASB) introduced new standards and made it compulsory to adhere to them. This helped in standardizing the way not-for-profit organizations account for charitable contributions. In addition, all not-for-profits will be required to restructure their financial statements.

NpF Accounting

Introduction

 Financial management of not-for-profits is similar to financial management in the commercial sector in many respects; however, certain key differences shift the focus of a not-for-profit financial manager. A for-profit enterprise focuses on profitability and maximizing shareholder value. A not-for-profit organization's primary goal is not to increase shareholder value; rather it is to provide some socially desirable need on an ongoing basis. A not-for-profit generally lacks the financial flexibility of a commercial enterprise because it depends on resource providers that are not engaging in an exchange transaction. The resources provided are directed towards providing goods or services to a client other than the actual resource provider(Datar 1997). Thus the not-for-profit must demonstrate its stewardship of donated resources — money donated for a specific purpose must be used for that purpose. That purpose is either specified by the donor or implied in the not-for-profit's stated mission. The management and reporting activities of a not-for-profit must emphasize stewardship for these donated resources. The staff must be able to demonstrate that the dollars were used as directed by the donor. The shift to an emphasis in external financial reports on donor restriction has made the use of fund accounting systems even more critical.

Discussion

Need for same standards

In developing the ITC, both Boards recognized a need to present a range of alternatives. However, a key overarching issue is whether all not-for-profit organizations should apply the same primary source of GAAP. Some users value the comparability gained from financial reports based on one primary source of GAAP. On the other hand, some have expressed the view that not-for-profit organizations should have the flexibility to choose from an acceptable set of alternative primary sources of GAAP, based on their circumstances(Anthony Young 1994).

Interested parties are asked to comment on this question and as to what they believe the primary source of GAAP should be. If respondents think that options should be available, they are asked to express a view on the scope of those options and factors to be considered when assessing which option to apply.

Simply meeting annual budget targets does not mean an NFP is successful. In fact, it could mean just the opposite if financial goals have been achieved through the minimization of important social and customer goals. Like for profit organizations, NFP management methods should begin with a mission statement and incorporate sets of interrelated goals ...