SFAS 116 & 117 Executive Summary Paper - Essay Example

Running head: SFAS 116 and SFAS 117 SFAS 116 and 117 Executive Summary - SFAS 116 and SFAS 117 The objective of the current report is to provide an insight into the background of two important accounting standards established by FASB in 1993. These accounting standards have major implication for entities that are registered as nonprofit organizations in the US. The accounting standards reviewed in this report are The Statement of Financial Accounting Standards (SFAS) Numbers 116 & 117.

The pronouncements related to these accounting standards led to confusion amongst nonprofit organizations as to how these standards would affect their accounting methods. These standards are considered as a major step by FASB to set accounting methods for recognition, recording and presentation of contributions made to nonprofit organizations. This is referred to as fund accounting. Both standards complement each other as SFAS 116 provides requirements for accounting of the contributions received while on the other hand SFAS 117 specifies the structure of the financial statements to be prepared by nonprofit organizations.

These standards are of great significance as this was the first time that the regulatory body took the initiative of bringing nonprofit organizations under the regulation umbrella by setting out steps to account for and report contributions received by nonprofit organizations in their financial statements. Upon examining the detailed requirements of both SFAS 116 and SFAS 117 it is clear that both standards serve different purpose yet aimed at bringing improvements in the working of nonprofit organizations and their financial reporting.

Specifically, SFAS 116 provides guidelines on understanding the basis of donations made by donors to highlight the terms and conditions lay out by donors and accepted by the receivers. On the other hand, SFAS117 provides extensive guidelines under Generally Accepted Accounting Principles (GAAP) for nonprofit organizational to prepare of financial information regarding contributions and present it in their financial statements. Under this standard three financial statements including Statement of Cash Flows, Statement of Financial Position and Statement of Activities are required by all such organizations.

In addition to these businesses may produce other types of reports but they are not considered mandatory by these standards (Davies, 2005). The common objective of both standards could therefore be suggested to increase the dependability of individuals upon the financial statements prepared by nonprofit organizations. Individuals who may wish to make donations to these nonprofit organizations need to have confidence in them for their contributions. The detailed financial statements can help donors to have clearer view of the working performance of nonprofit organizations registered in the US (Locklear, 1997).

The standards are viewed to create confusion and disparity in financial reporting of contributions received by nonprofit organizations. Till now organizations are working on developing a good understanding of the requirements set out in these standards however there is still lot of work to be done to ensure the fulfillment of requirements by such organizations (Locklear, 1997). References Davies, C. (2005). The Impact of SFAS 116 & 117 on Nonprofit Organizations. Seattle, WA: Jacobson Jarvis & Co.

Locklear, A. (1997, March 1). Whats the difference between commercial & fund accounting systems? Retrieved February 20, 2010, from AllBusiness.com: http://www.allbusiness.com/personal-finance/individual-taxes-tax-deductions/614958-1.html