Fall 2008 issue of Horizons

INDUSTRY ◆

PUBLIC SECTOR

When Not-for-Profit Organizations Should Use Governmental Accounting In 1993, the Governmental Accounting Standards Board issued a staff paper titled “Applicability of GASB Standards to not-for-profit entities.” This document was a collaborative effort between the Financial Accounting Standards Board and the GASB, where jointly the two bodies agreed to a definition of “government.” This definition was expected to be particularly helpful for certain not-for-profit organizations in determining whether to follow generally accepted accounting principles applicable to state and local governments or GAAP for other nongovernmental entities, such as FASB Statement No. 116, “Accounting for Contributions Received and Contributions Made,” and 117, “Financial Statements of Not-for-Profit Organizations.” Neither board issued an accounting standard, so the GASB staff paper is the highest level of authoritative guidance that exists. Unfortunately, even 15 years later, inconsistencies and some confusion still exist about which GAAP to follow for situations that involve not-for-profit entities that have governmental characteristics or are created by a government. The issue of what GAAP to follow applies to not-for-profit entities such as health care organizations, colleges and universities, libraries, public radio or television stations, and school foundations. The difficulty is caused by the variety of ways in which governments are created as well as the extent to which these entities either perform functions that could be considered “governmental” in By Jeff Winter, CPA, CGFM

43 ◆ fall 2008 issue