There are a number of financial accounting disclosures expected for nonprofit organizations. These disclosures are often in addition to the regulations enacted by congress which nonprofit organizations are usually expected to abide by in the course of their operations. The disclosures presented by nonprofit organizations are often aimed at aiding the users of these financial statements in making rational decisions for the institution. These include investors, customers, lenders and even the employees who work in this institutions. This paper analyzes some of the most common financial disclosures that nonprofit organizations are expected to make as provided by the Statement of Financial Accounting Standards (SFASs) and how the disclosures provide information that is useful to the users of these financial statements.
The disclosures that nonprofit organizations are expected to make in their financial statements is the summary of accounting policies that are adopted by the organization and financial accounts. In this disclosure, two main sections are often addressed. This includes a brief summary with a description of the organization and a summary that lists the main financial accounts and policies adopted by the organization (Miller, 2010). Accounting policies used by an organization may include the types of accounting methods used in the preparation of the financial statements. This is because different organizations adopt different policies in the preparation of their financial statements. According to Schipper (2007), the accounting policies, therefore, enables users to understand the classification of different accounts in the organization, for example, the items that are classified under cash, those considered as fixed assets and the methodology adopted in the determination of fair value of the investment. In general, the summary of financial policies and accounts guides the users of financials statements by enabling them to understand the different financial records and methodology adopted in order to make rational decisions that affect the organization.
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The IRS and the congress have provided nonprofit organizations with disclosure requirements that every organization is expected to adhere to during the presentation of their financial disclosure. According to the National Council of Nonprofits (2015), the IRS requires that in the event that a nonprofit organization wants to apply for tax-exemption, the organization should present copies of their annual information returns commonly known as ‘IRS Form 990’ attached alongside their determination letters. The annual information return form should include a period of the organization's three recent years fully filled and signed. The presentation of the annual information returns is aimed at demonstrating that the organization is committed to transparency. These records also enable the users of the financial statements to easily retrieve the required financial information for the purpose of rational decision making. This information is thus required to be public information, and in order to achieve this, the nonprofit organizations often avail their annual information return in their main organization website.
Through the access of this financial information for the general public consumption, the government through the IRS and the congress enables citizens to adequately analyze these financial statements and in return make sentiments concerning the financial achievement or downfall of a non-profit organization. These sentiments often include both positive and negative remarks from the general public ( National Council of Nonprofits, 2015 ). This enables the government to ensure that the financial funds allocated to the nonprofit organizations are efficiently used in the most appropriate manner and that no deviations and scandals are associated with an organization. In the case of deviations and scandals, an organization should then be investigated and the correct judicial measures taken for those involved in these scandals. Therefore, in addition to enabling the users of financial statements to make rational decisions that affect the organization, the financial disclosures presented by nonprofit organizations also ensures that the organization uses the funds allocated to them in the correct optimal and equitable manner.
References
Miller, S. H. (2010). Common Disclosures | Nonprofit Accounting Basics . Retrieved from http://www.nonprofitaccountingbasics.org/financial-statementsreporting/common-disclosures .
National Council of Nonprofits. (2015). Public Disclosure Requirements for Nonprofits. Retrieved from https://www.councilofnonprofits.org/tools-resources/public-disclosure-requirements-nonprofits .
Schipper, K. (2007). Required disclosures in financial reports. The Accounting Review , 82 (2), 301-326. http://dx.doi.org/10.2308/accr.2007.82.2.301.
