Functional Expenses and Generally Accepted Accounting Principles (GAAP)

The Financial Accounting Standards Board published Statement of Financial Accounting Standards No. 117: Financial Statements of Not-for-Profit Organizations (FAS 117) in June 1993. This 79-page document details the standard reports that nonprofits must provide if they wish to have statements that are consistent with Generally Accepted Accounting Principles (GAAP). For organizations receiving government grants or bank loans, or for other organizations that have their financial statements audited by certified public accountants, following GAAP is required.

Despite the length of the document, its discussion of the classification of expenses is quite limited. It begins:

To help donors, creditors, and others in assessing an organization's service efforts, including the costs of its services and how it uses resources, a statement of activities or or notes to financial statements shall provide information about expenses reported by their functional classification such as major classes of program services and supporting activities. (p.9)

It goes on to discuss in a single, albeit lengthy, paragraph what is to be counted as "supporting activites": "Generally, they include management and general, fundraising, and membership-development activities."

"Management and general activities," the statement continues, "include oversight, business management, general recordkeeping, budgeting, financing, and related administrative activities, and all management and administration except for direct conduct of program services or fund-raising activities."

Added 03/11/2003 by tpollak, Modified 12/10/2004 by mhager


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