Academic journal article Journal of Accountancy

FASB 124 Attempts to Resolve Inconsistencies in NPO Reporting

Academic journal article Journal of Accountancy

FASB 124 Attempts to Resolve Inconsistencies in NPO Reporting

Article excerpt

The Financial Accounting Standards board has issued Statement no. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, the fourth statement growing out of the FASB's project to resolve inconsistencies in accounting and reporting by not-for-profit organizations (NPOs).

Statement no. 124 says that equity investments with readily determinable fair values and all investments in debt securities should be reported at fair value, with gains and losses included in a statement of activities. It requires certain disclosures about all investments held by NPOs, including the returns on those investments.

The statement also says that in the absence of donor stipulations or law to the contrary, losses on donor-restricted endowment fund investments will reduce temporarily restricted net assets to the extent that donor-imposed restrictions on net appreciation of the fund have not been met before the loss occurs. Any remaining loss will reduce unrestricted net assets. According to FASB project manager Susan Weiss, "Although a significant number of not-for-profit organizations currently report all investments at fair value, inconsistencies exist because existing guidance permitted alternatives."

Practitioners agreed with this observation. "The not-for-profit accounting community has operated with little guidance over the years," said Susan L. …

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