Ron Bauers  

A Short Course in Not-for Profit Accounting - Installment Three

Ron Bauers
June 13, 2019

Editor's Abstract (Click to Hide)

In his 3rd installment, Ron Bauers presents the different requirements for financial reporting for not-for-profit and for-profit organizations. Ron first presents the objectives of financial reports and what kind of information they contain. He then goes on to explain how financial reports are used, who the typical users of financial reports are, and how this differs for the two types of organizations.

- Ann Drinan

FASB Objectives for Financial Reports

Get ready for here it comes – the excitement of a shortened version of the FASB objectives of financial reporting from the FASB Statement of Financial Accounting Concepts No. 4, Objectives of Financial Reporting by Nonbusiness Organizations (1980).

Financial reporting should provide information that is useful to present and potential resource providers, as well as other users, by following these objectives:

  1. In making rational decisions about the allocation of resources in those nonbusiness organizations.

  2. In assessing the services that a nonbusiness organization provides, and its ability to continue to provide those services.

  3. In assessing how the managers of a nonbusiness organization have discharged their stewardship responsibilities, and about other performance-related measures.

  4. About the economic resources, obligations and net resources of an organization ands the effects of transactions, events and circumstances that change resources and interests in those resources.

  5. About the performance of an organization during a period of time, with periodic measurement of the changes in the amount and nature of the net resources of a nonbusiness organization, and information about service efforts and accomplishments of an organization.

  6. About how an organization obtains and spends cash or other liquid resources, about its borrowings and repayment of borrowings, and about other factors that may affect an organizations liquidity.

  7. By including explanations and interpretations to help users understand the financial information provided.

While not stated explicitly in the above objectives, it is very important that consistently-applied accounting principles are necessary to accomplish the above objectives, to prevent the cacophony of information provided by the multitude of not-for-profit organizations.

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