Robert K. Mautz, Financial Reporting for Nonprofit Organizations: A Fresh Look (New York: Garland Publishing, Inc., 1994, 119 pp., $35).
Reviewed by Denise Nitterhouse DePaul University
The book Financial Reporting for Nonprofit Organizations: A Fresh Look, by Robert K. Mautz, is readable and provocative. It uses an interesting "intellectual exercise" to develop a set of proposed principles for financial reporting by nonprofit entities. While one may not agree with all of the book's propositions, it offers many points that deserve further consideration as we move forward with accounting principles and standards for nonprofit and governmental organizations.
The book begins by discussing the distinguishing characteristics of nonprofit organizations and describing an intellectual exercise that was used to explore the applicability of conventional accounting theory and practice to nonprofits. An unidentified team engaged in the intellectual exercise then develops a classification of nonprofit organizations, including governmental entities, and addresses several issues, including the nature of nonprofits and their involvement in profit-directed activities, and the audience and focus for nonprofit financial reporting.
Chapter 2 discusses current nonprofit financial reporting practice as embodied in the financial statements of two membership and one state government organization. The types of disclosure in each of the three sets of financial statements are discussed, but the financial statements themselves are not provided. One serious limitation of the work is the lack of charitable, educational or health care organization financial statements in the exercise. The chapter concludes
with the overall impressions of the team:
--the variety of activities and financial reporting within the nonprofit class.
--the extent to which nonprofit entities engage in for profit activities.
--the complexity of fund accounting in the state government's financial statements.
--the freedom available in applying GAAP to nonprofit entities.
--the absence of a bottom line to indicate success or failure.
--the absence of any identifiable purpose of the reporting.
--confusion as to the anticipated readership of the reports.
--the apparent lack of interest in the differences between for profit and nonprofit entities.
Some team members appear to be experienced and sophisticated with respect to business accounting, but not with nonprofit accounting. A listing of the participants and their backgrounds would help the reader to better understand the findings, especially in light of their comments on the difficulty of understanding the nonprofit and governmental financial statements with which they were dealing
e.g., p. 36
. As it is, one is left guessing who was involved and what their backgrounds are.
Chapter 3 discusses several problems that the team felt made it inappropriate to apply accounting theory developed for business organizations to nonprofit entities. The key issues addressed
--The nature and importance of differences between business and nonprofit organizations.
--The applicability of conventional financial statement formats to nonprofit organizations.
--The applicability of conventional accounting concepts to nonprofit organizations.
--The feasibility of the fund emphasis for financial reporting purposes.
--The nature and importance of difference among nonprofit entities.
Chapter 4 presents and discusses alternative financial statements that the team developed for the three nonprofit organizations introduced in Chapter 2. This part of the exercise was undertaken to get the team members to think about and apply the theoretical considerations in a practical way. …