Minding the GAAP

Avatar

MIP Team

September 28, 2021

    Minding the GAAP  resources for generally accepted accounting principles

    Both nonprofits and government agencies must follow GAAP, the Generally Accepted Accounting Principles.The Financial Accounting Standards Board and the Government Accounting Standards Board, created this set of principles jointly and updates to GAAP when necessary. By adhering to GAAP, nonprofits can ensure financial information is reported effectively, transparently, and efficiently.

    Nonprofits using GAAP provide specific financial statements including balance sheet, statement of activities, statement of cash flows and income statement. One of the additional advantages for nonprofits in using GAAP is the reporting standards reflect a nonprofit’s clearest financial picture to donors, auditors, board members and potential grant funders.   

    During audits, nonprofit financial statements are examined to access if they are GAAP compliant. An independent auditor will then provide a written statement attesting to whether the nonprofit’s financial statements are fairly stated and comply in all material respects with GAAP. If there are inconsistencies or deviations from GAAP, they might be cause for concern during an audit. By adhering to the GAAP principles, nonprofits can also help ensure their not-for-profit tax status as well.

    Nonprofits can also help their board and key stakeholders understand the importance of GAAP and why it’s fundamental to follow GAAP standards for reporting. Under GAAP, nonprofits structure your financial statements the same way from year to year which also provides comparison views of previous financials and highlights opportunities for course correction or growth in services. Using a fund accounting solution built to support the unique needs of nonprofits can help streamline adherence to GAAP.

    Below are 3 online resources for understanding GAAP and how to ensure your organization is utilizing these principles in reporting.  

    1. Financial Accounting Standards Board – information directly related to the FASB’s.  
    2. A resource site for information on GAAP and how it applies in financial reporting for non-profits and organizations.  
    3. Resource information on the history of GAAP, why they were created and how nonprofits can adhere to them.   

    And if you’re curious about the history of nonprofit accounting and how it has evolved, there’s an excellent blog post at
    CPA Journal detailing the earliest beginnings of not-for-profit accounting.

    We also invite you to download our Auditing for Nonprofit Financials guide 

    Stay on top of the latest and greatest. Sign up now.

    Recommended for you