Statements of Financial Accounting Standards

Statements of Financial Accounting Standards

Name

Institution

The SFAS 116 and 117 deal with how non-governmental organizations account for money granted to them as well as the presentation of their financial statements. The SFAS 116 deals with the contributions received while 117 majors on the format of the financial statement presentation and format. These SFASs are used by non-profit organizations because donors need to know what the money they contributed was employed in doing, in other words, the two help non-profit organizations become transparent and accountable for the funds they received (Robert, 2009).

SFAS 116 shows how the organizations use the contributions allocated to them while the SFAS 117 shows how these contributions are represented in a statement of accounts. The SFAS 116 is enforced because of donor restrictions to avoid misuse and misallocation of the funds received by these organizations. The SFAS 117 accepted accounting principles to be used when making the financial statements for the non-profit firms and applies to all organizations that have more than five million worth of assets and a million plus in annual expenses. The two have enabled donors, creditors and members of the non-profit organizations to make better judgments regarding the funding and financing activities, the leadership of the organization as well as the overall performance of the organization (Robert, 2009).

For instance, the SFAS 117 allows net asset classification instead of fund classifications or groups.  Many non-profit organizations receive funding from many sources; therefore, the financial statement allows net asset classification instead of the individual groups that were previously used. With the implementation of SFAS 116 and 117, there came changes. The most significant changes were the use of three financial statements. These statements are the Statement of Financial Position also known as the Balance Sheet, Statement of Activities which shows the Statement of Revenues and Use or expenditure and the Cash Flows.

Also, the pledges made to the institution are recorded and the total for a multiyear year contribution must be shown. Finally, the organization must demonstrate expenses used for a particular function, for instance, program totals, fundraising totals and so on.

The SFAS 117, however, allows a non-profit organization to issues statements of finance in the format they prefer, provided they adhere to the specifications and clarifications it brought up. The SFAS also promotes transparency and allows the organizations to report internally, fund by fund. Therefore, fund by fund report is prepared and used internally, while the SFAS 117 is used for external purposes only (Robert, 2009).