SFAS 116 and 117 This Report Summarizes

SFAS 116 and 117 This report summarizes SFAS 116 which deals with contributions made and received, and SFAS 117 which deals with financial statement format. Compliance with the two standards is mandatory for years ending December 31, 1995 and going forward, but with an optional one year delay for organizations with annual expenditures under $1 million and total assets under $5 million. SFAS 116 and 117 affect all levels of operation of the non-profit organization, not just the accounting function.

From development officers to legal counsel to IT support, for example, SFAS 116 and 117 reporting requirements can impact how those responsibilities are carried out (Fleming, n.d.). Statement of Financial Accounting Standards (SFAS) No. 116 establishes standards for contributions received and contributions made. In general, the following guidelines apply: Contributions received, as well as unconditional promises to give, are recognized as revenues in the period in which they are received at their fair values.

Contributions made, as well as unconditional promises to give, are recognized as expenses in the period in which they are made at their fair values. Conditional promises to give, either received or made, are recognized at the time that they become unconditional, that is, at the time that the conditions are substantially met. SFAS 116 also requires that not-for-profit organizations must distinguish between permanently, temporarily and unrestricted net assets. The statement also requires that the expiration donor-imposed restrictions be recognized in the period in which the restrictions expire (FASB, 1993).

There are certain exceptions allowed for contributions of services and works of art, historical treasures as well as similar assets. SFAS 116 requires that contributions of services are recognized only if the services received either create or enhance nonfinancial assets, or if they require specialized skills, are provided by persons possessing those specialized skills, and the services would typically need to be purchased if not provided by donation.

On the other hand, contributions that consist of works of art, historical treasures and similar assets are not required to be recognized as revenues and capitalized if the donated items meet the following conditions: they are added to collections held for public exhibition, education, or research in the advancement of public service as opposed to financial gain. SFGAS 116 also spells out requirements for certain disclosures for collection items that are not capitalized, and for receipts of contributed services as well as promises to give (FASB, 1993).

SFAS 117 sets standards for general-purpose external financial statements that are provided by a not-for profit organization. The goal of the standard is to improve the relevance, understandability, and comparability of financial standards issued by not-for-profit organizations. Financial statement of these organizations must provide certain basic information focusing on the entity as a whole, which meets the common needs of external users of those financial statements (FASB, 1993). SFAS 117 requires that all not-for-profit organizations provide a statement of financial position, a statement of activities, and a statement of cash flows.

SFAS 117 requires reporting amounts for the organization's total assets and liabilities, and net assets in a statement of financial position. SFAS 117 also requires the change in an organization's net assets in a statement of activities be reported in a statement of activities and requires the change in the organization's cash and cash equivalents be reported in a statement of cash flows (FASB, 1993). SFAS 117 requires that an organization classify its net assets and its revenues, expenses, gains, and losses based on whether there are or are not donor-imposed restrictions.

According to SFAS 117, the amounts for permanently, temporarily and unrestricted net.