By Martin, D. Edward; Floch, Julie L.
The CPA Journal , Vol. 67, No. 5
In 1978, the American Institute of CPAs' Accounting Standards Executive Committee (AcSEC) issued Statement of Position (SOP) 78-10, Accounting Principles and Reporting Practices for Certain Nonprofit Organizations. This SOP (the guidance from which was later expanded in an AICPA audit and accounting guide for other nonprofit organizations) was intended to provide accounting and reporting help for those many types of entities that-unlike voluntary health and welfare organizations, colleges and universities, and not-for-profit hospitalsdid not receive specific direction from a formal AICPA guide. But there was an even larger goal in mind.
For most entities and their auditors, not-for-profit accounting and reporting was at that time a mixed bag of concepts and methods appropriated from the commercial sector, existing AICPA audit and accounting guides and SOPs, and established practices of individual not-for-profit industry sectors. Thus, many saw SOP 78-10 as an opportunity to make not-for-profit accounting and reporting guidelines more consistent from one entity to the next, regardless of their missions. But, more than that, they hoped to use the SOP as a catalyst to bring virtually all of the diverse enterprises beneath the not-for-profit umbrella under the aegis of a single authoritative accounting and auditing document. At long last, nearly two decades later, that ambition has been largely realized.
Most persons with an interest in the independent sector, as it is frequently called, are well acquainted with the Financial Accounting Standards Board's (FASB) activities in this area, beginning most notably in 1980 with Statement of Financial Accounting Concepts No. 4 on "nonbusiness" entities, continuing in 1987 with SFAS No. 93 (requiring capitalization of fixed assets and related depreciation) and culminating in the mid-1990s with SFAS No. 116 (on contributions made or received), SFAS No. 117 (on display of financial statements), and SFAS No. 124 (on accounting for investments at market value). Now, effective for financial statements ending on or after December 31, 1996, AcSEC has set in place the capstone to the changes of the past several years with the issuance of its new audit and accounting guide, simply titled Not-for-Profit Organizations.
Scope of the New Guide At nearly 200 pages (before appendices), the AICPA's new audit and accounting guide covers a lot of ground. It incorporates the requirements of FASB Statements Nos. 116, 117, and 124, while superseding the audit and accounting guides for colleges and universities, voluntary health and welfare organizations, and other not-for-profit organizations. SOP 7S10 also bites the dust, as do SOP 74-8, Financial Accounting and Reporting by Colleges and Universities (included in the college and university guide); SOP 872, Accounting for Joint Costs of Informational Materials and Activities of Not-for-Profit Organizations That Include a Fund-Raising Appeal; and SOP 94-2, The Application of the Requirements of Accounting Research Bulletins, Opinions of the Accounting Principles Board, and Statements and Interpretations of the Financial Accounting Standards Board to Not-for-Profit Organizations. The new guide absorbs the essence of these last two SOPs, while including as appendices SOP 92-9, Audits of Not-for-Profit Organizations Receiving Federal Awards, and SOP 94-3, Reporting of Related Entities by Notfor-Profit Organizations.
The new guide applies to all nongovernment not-for-profit entities except those healthcare organizations subject to the AICPA audit and accounting guide for such enterprises, which replaced the previously mentioned guide for hospitals. Government organizations are not affected by the new guide if they follow the AICPA audit guide model as addressed in GASB Statements No. 15 and No. 29. Moreover, the new guide's definition of a notfor-profit entity expands the description included in SFAS No. 116, which excludes those entities that provide lower costs or other economic benefits directly to their owners, members, or participants (e. …