Financial statement disclosures for nonprofits refer to the additional information that is included in the financial statements to provide more context and detail about the organization’s financial activities. These disclosures are important because they help stakeholders understand the organization’s financial performance, financial position, and cash flows.
Nonprofits are required to follow specific accounting standards when preparing their financial statements, including Generally Accepted Accounting Principles (GAAP) and the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-205, which provides guidance on financial statement presentation for nonprofit organizations.
Some common financial statement disclosures for nonprofits include:
- Significant accounting policies: This section provides information about the accounting methods used by the organization, such as revenue recognition, depreciation, and inventory valuation.
- Revenue recognition: Nonprofits may have different revenue recognition policies depending on the type of revenue they receive, such as donations, grants, or program fees. Disclosures should explain the criteria used to recognize revenue and any significant judgments made in the process.
- Donor restrictions: Nonprofits often receive donations that are restricted to specific programs or activities. Disclosures should explain how these restrictions are accounted for and how the organization is ensuring that the funds are being used for their intended purposes.
- Investments: Nonprofits may have investments in stocks, bonds, or other securities. Disclosures should provide information about the nature and valuation of these investments, as well as any risks associated with them.
- Capital assets: Nonprofits may own buildings, equipment, or other long-term assets. Disclosures should provide information about the cost, depreciation, and useful life of these assets.
- Contingencies: Nonprofits may be involved in legal or regulatory disputes that could have a significant impact on their financial position. Disclosures should provide information about the nature and potential impact of these contingencies.
- Related-party transactions: Nonprofits may have transactions with board members, key personnel, or other related parties. Disclosures should provide information about the nature and terms of these transactions.
Overall, financial statement disclosures for nonprofits are important because they provide transparency and accountability to stakeholders, helping them make informed decisions about the organization’s financial health and sustainability.