FASB 124 attempts to resolve inconsistencies in NPO reporting.
Statement no. 124 says that equity investments with readily determinable fair values and all investments in debt securities should be reported at fair value, with gains and losses included in a statement of activities. It requires certain disclosures about all investments held by NPOs, including the returns on those investments.
The statement also says that in the absence of donor stipulations or law to the contrary, losses on donor-restricted endowment fund investments will reduce temporarily restricted net assets to the extent that donor-imposed restrictions on net appreciation of the fund have not been met before the loss occurs. Any remaining loss will reduce unrestricted net assets. According to FASB project manager Susan Weiss, "Although a significant number of not-for-profit organizations currently report all investments at fair value, inconsistencies exist because existing guidance permitted alternatives."
Practitioners agreed with this observation. "The not-for-profit accounting community has operated with little guidance over the years," said Susan L. Prenatt, vice-president-finance and administration and chief financial officer of the Indianapolis Symphony Orchestra. "The result has been inconsistent reporting among NPOs (even those within the same inddustry), unnecessary differences between NPOs and for-profit corporations and NPO financial statements that are difficult for the public to read. Now reporting will be more in line with the way the public is used to seeing investments reported.
"The statement spells out clearly how investments are to be handled," she added. "For those in industry, it begins to establish reporting standards for investments that are consistent with for-profits and modern investment theory. The statement makes it easier to account for and report on a total return investment policy and an endowment spending rate based on the expenditure of a portion of the investment return."
Statement no. 124 is effective for annual financial statements issued for fiscal years beginning after December 15, 1995, and earlier application is encouraged, according to the FASB.
An article about this statement will appear in the March issue of the Journal of Accountancy.
Copies of Statement no. 124 (product code no. S124) are available for $11 each from the FASB Order Department, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116, (203) 847-0700, ext. 555.
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|Title Annotation:||Financial Accounting Standards Board, not-for-profit organizations|
|Publication:||Journal of Accountancy|
|Article Type:||Brief Article|
|Date:||Feb 1, 1996|
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