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Statements 116 and 117 on contributions to NPOs.

The Financial Accounting Standards Board issued two companion statements on accounting for not-for-profit organizations (NPOs).

Statement no. 116, Accounting for Contributions Received and Contributions Made, requires contributions received by any organization--including unconditional promises to give--to be recognized at fair value in the period they were received. Conditional promises to give should be recognized in the period when the conditions are substantially met.

Contributions made--including unconditional promises to gives--hould be recognized at fair value as an expense in the period they were made.

Statement no. 116 allows certain exceptions for contributions of services and works of art, historical treasures and similar assets.

Remedying the confusion? According to the FASB, NPOs' reporting practices differ widely, sometimes confusing financial statement users--especially when they try to compare the statements of different NPOs. Statement no. 117, Financial Statements of Not-for-Profit Organizations, is intended to alleviate this confusion by establishing standards that enhance the relevance, understandability and comparability of general purpose external financial statements issued by such organizations.

"Statement no. 117 will help most external users understand not-for-profit financial statements," said Kenneth D. Williams, chairman of the American Institute of CPAs not-for-profit organizations committee and a partner of Coopers & Lybrand in Syracuse, New York.

Still, Williams termed Statement no. 117 "an extremely flexible document" that left open the possibility for inconsistencies in accounting for different types of NPOs and didn't fully address other issues hampering comparability between financial statements--issues FASB eventually will have to address.

"Investments are an area the FASB is going to look at," Williams said. "How you define the reporting entity is another. And the consolidation issue also will be ongoing."

Statement no. 117 requires NPOs to report amounts for their total assets, liabilities and net assets in a statement of financial position; the changes in their net assets in a statement of activities; and the changes in their cash and cash equivalents in a statement of cash flows.

In addition, Statement no. 117 requires classifications of net assets and revenues, expenses, gains and losses to be based on the existence or absence of donor-imposed restrictions. The amounts for each of three classes of net assets--permanently restricted, temporarily restricted and unrestricted--must be displayed in the financial position statements and the amounts of change in each class must be shown in the activities statement.

Statement no. 117 also amends FASB Statement no. 95, Statement of Cash Flows, to extend its provisions to NPOs and to expand its description of cash flows from financing activities to include certain donor-restricted cash that must be used for long-term purposes. It also requires voluntary health and welfare organizations to provide a statement of functional expenses that reports expenses by both functional and natural classifications.

Both Statements nos. 116 and 117 are effective for financial statements issued for fiscal years beginning after December 15, 1994, except for organizations with less than $5 million in total assets and less than $1 million in annual expenses. For these organizations, the statements are effective for fiscal years beginning after December 15, 1995 (although earlier application is encouraged).

Copies of the statements and information on prices and discount rates can be obtained by contacting the FASB order department at (203) 847-0700, ext. 555.
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Title Annotation:not-for-profit organizations
Publication:Journal of Accountancy
Date:Sep 1, 1993
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