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Disclosure requirements for nonprofit organizations; scandal

The FASB's Conceptual Framework and Statements of Financial Accounting Standards (SFASs) require full disclosures to be made in a business enterprise's financial statements. These disclosures requirements are applicable to corporations and nonprofit organizations. The purpose of these disclosures is to provide reliable and relevant information to the users of the financial statements. In addition to disclosures required by the FASB, nonprofits must also be in compliance with regulations enacted by Congress as well as local laws.

You currently work for a nonprofit organization as a staff accountant. The controller has requested that you conduct research on disclosure requirements for nonprofit organizations to ascertain if the organization is in compliance with established FASB requirements and any other regulations applicable to nonprofits, such as IRS regulations.

Describe financial accounting disclosures required for nonprofit organizations and how these disclosures provide useful information to users.

Explain disclosure requirements for nonprofit organizations, such as the tax-exempt determination letters required by Congress and the IRS.

Discuss the reasons for these disclosure requirements and the sentiments of the public and government about deviations and scandals in this sector because of lack of disclosures.

Include a minimum of 3 facts as they apply to the disclosure requirements for nonprofit organizations.

Solution Preview

Describe financial accounting disclosures required for nonprofit organizations and how these disclosures provide useful information to users.

Nonprofit organizations (NFPs) issues statement for a wide array of stakeholders, including donors, grantors, members, lenders, consumers and regulatory bodies. The objectives of financial reporting are the generally the same as for-profit with a few differences. Financial reports should assist the reader in assessing past performance, economic resources, obligations, net resources and changes in these resources. So, financial policies, major assets, major obligations, contingent liabilities, promises, guarantees, and significant events must be discussed in enough detail to help the reader understand the impact on the organization's performance, economic resource and future prospects and cash flows.

In addition, NFP have some unique features that require special discussion. For instance, NFPs often have unrestricted, temporarily restricted and permanently restricted assets. They may also have liabilities that related to these assets. The nature of the restrictions would be disclosure in the footnotes as well as the amount and reclassifications among categories.

Also unique to NFPs is the requirement to allocate expenses to the function/programs using some reasonable basis. That is, NFPs must report their expenses by their functional classification (program or supporting) ...

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