SFAS 116 and 117 Executive Summary
Statements of Financial Accounting Standards (SFAS) 116 and 117
SFAS 116 underlies accounting for contributions received and contributions made. This statement requires that not-for-profit organizations distinguish between the contributions received that increase permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. In addition the statement requires that recognition of the expiration of donor-imposed restrictions is in the period in which the restrictions are met or expire.
Exceptions are made for certain types of contributions, including contributions of services, works of art, even historical treasures. If the contributed services either create or enhance nonfinancial assets, or persons providing special skills that would otherwise need to be purchased if not donated, the contribution is recognized.
SFAS 117 underlies the requirements for financial statements of not-for-profit organizations. The objective of Statement 117 is to enhance an organization’s financial statement relevance, understandability, and comparability. Specific information is required that reports the organization as a whole and that meets the common needs of external users of the financial statements.
In accordance with Statement 117, all not-for-profit organizations must provide a statement of financial position, a statement of activities, and a statement of cash flows. In addition, organizations must report amounts for its total assets, liabilities, and net assets in the statement of financial position; report the organization’s change in net assets in the statement of activities; and report the change in cash and cash equivalents in the statement of cash flows.
SFAS 116 and 117 are important statements for maintaining financial accounting standards for not-for-profit organizations. Statement 116 ensures that proper reporting procedures are followed when an organization receives or makes contributions, while Statement 117 underlies requirements for year-end financial statements.
Image license: ShutterStock (view license)