FASB on Accounting for Contributions

The news item, “FASB Provides New NPO Guidance” ( JofA, Oct.99, page 13), is an excellent description of the rules on accounting for contributions made to one nonprofit organization and transferred to another—a transaction that affects a thousand or so organizations.

Another contributions problem that affects many thousands of nonprofit organizations also should be considered. FASB Statement no. 117, Financial Statements of Not-for-Profit Organizations, requires all nonprofit organizations to publish a statement of activities that contains a column for “unrestricted” revenues and expenses. If the organization receives an endowment not explicitly restricted by the donor, that donation must be reported as unrestricted revenue.

Some monetary contributions are so sizable they obviously are not intended for operating purposes. Other contributions resulting from a capital campaign, or consisting of museum objects, clearly are not intended to finance operating activities even though not explicitly restricted. Consequently, the statement of activities overstates operating income.

An organization can report operating income, but only as a designated part of the unrestricted column, and there is no definition of “operating.” The statement-of-activities reports made by these organizations, therefore, are seriously misleading.

Robert N. Anthony, Professor
Harvard Business School


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