Sfas 116 and 117 Executive Summary

SFAS 116 and 117 Executive Summary

Krystal Gruenewald

ACC/460

Joe Walthour, Jr.

January 19, 2015

The two standards are Financial Accounting Standard No. 116, dealing with contributions made and received, and Financial Accounting Standard No. 117, dealing with financial statement format. Compliance with both standards is required for years ending December 31, 1995 and beyond, with an optional one year delay for small organizations which are those with annual expenditures under $1,000,000 and total assets less than $5,000,000.

The impact of FAS 116 and 117 is so extensive that all levels of operations at a nonprofit will be affected - not just the accounting office. For example, development officers will need to know the exact terms of contributions in order to correctly record them under the new standards, legal assistance may be needed to determine the proper treatment for endowment fund gains and losses, and computer assistance may be required to accommodate the new reporting requirements.

The following is an overview of the two new standards.

FAS 117

* A set of financial statements should include a balance sheet, statement of activity, statement of cash flows and, for voluntary health and welfare organizations, a statement of functional expenses. Note that the statement of cash flows has not previously been required for many nonprofit organizations.

* Financial statements should focus on the entity as a whole, rather than reporting on separate fund groups. Reporting totals for all fund groups has been done by some nonprofits but many have not done so in the past.

* Contributions and net assets (previously called fund balance) must now be separated into three categories based solely on donor imposed restrictions. The three categories are "unrestricted", "temporarily restricted" and "permanently restricted".

* Expenses are to be reported (1) by functional categories (programs, management and general, and fundraising) rather than by natural categories...