PRONOUNCEMENTSASAMENDEDORIGINALStatementofFinancialAccountingConceptsNo.4
ObjectivesofFinancialReportingbyNonbusinessOrganizations
Copyright©2008byFinancialAccountingStandardsBoard.Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans,electronic,mechanical,photocopying,recording,orotherwise,withoutthepriorwrittenpermissionoftheFinancialAccountingStandardsBoard.
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StatementofFinancialAccountingConceptsNo.4ObjectivesofFinancialReportingbyNonbusinessOrganizations
STATUS
Issued:December1980Affects:NootherpronouncementsAffectedby:Nootherpronouncements
HIGHLIGHTS
[BestunderstoodincontextoffullStatement]
•ThisStatementestablishestheobjectivesofgeneralpurposeexternalfinancialreportingbynonbusinessorganizations.–BasedonitsreviewofthoseobjectivesandtheobjectivessetforthinFASBConceptsStatementNo.1,ObjectivesofFinancialReportingbyBusinessEnterprises,theBoardhasconcludedthatitisnotneces-sarytodevelopanindependentconceptualframeworkforanyparticularcategoryofentities.
–Thetwosetsofobjectiveswillserveasthefoundationofanintegratedconceptualframeworkforfinan-cialaccountingandreportingthat,whencompleted,willhaverelevancetoallentitieswhileprovidingappropriateconsiderationofanydifferentreportingobjectivesandconceptsthatmayapplytoonlycer-taintypesofentities.
–Pendingresolutionoftheappropriatestructureforsettingfinancialaccountingandreportingstandardsforstateandlocalgovernmentalunits,theBoardhasdeferredafinaldecisiononwhethertheobjectivesinthisStatementshouldapplytogeneralpurposeexternalfinancialreportingofthoseunits.Onthebasisofitsstudytodate,theBoardisawareofnopersuasiveevidencethattheobjectivesinthisStatementareinappropriateforthattypeoffinancialreportingbystateandlocalgovernmentalunits.
–Basedonitsstudy,theBoardbelievesthattheobjectivesofgeneralpurposeexternalfinancialreportingforgovernment-sponsoredentities(forexample,hospitals,universities,orutilities)engagedinactivitiesthatarenotuniquetogovernmentshouldbesimilartothoseofbusinessenterprisesorothernonbusinessorganizationsengagedinsimilaractivities.
•ThisStatementfocusesonorganizationsthathavepredominantlynonbusinesscharacteristicsthatheavilyinfluencetheoperationsoftheorganization.–Themajordistinguishingcharacteristicsofnonbusinessorganizationsinclude:(a)receiptsofsignificantamountsofresourcesfromresourceproviderswhodonotexpecttoreceiveeitherrepaymentoreco-nomicbenefitsproportionatetoresourcesprovided,(b)operatingpurposesthatareprimarilyotherthantoprovidegoodsorservicesataprofitorprofitequivalent,and(c)absenceofdefinedownershipinter-eststhatcanbesold,transferred,orredeemed,orthatconveyentitlementtoashareofaresidualdistri-butionofresourcesintheeventofliquidationoftheorganization.
–Thesecharacteristicsresultincertaintypesoftransactionsthatareinfrequentinbusinessenterprises,suchascontributionsandgrants,andintheabsenceoftransactionswithowners.
–Thelinebetweennonbusinessorganizationsandbusinessenterprisesisnotalwayssharpsincetheinci-denceandrelativeimportanceofthosecharacteristicsinanyorganizationaredifferent.Thissuggests
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FASBStatementofConcepts
that,forpurposesofdevelopingfinancialreportingobjectives,aspectrumoforganizationsexistsrang-ingfromthosewithclearlydominantnonbusinesscharacteristicstothosewithwhollybusinesscharacteristics.
–ExamplesoforganizationsthatclearlyfalloutsidethefocusofthisStatementincludeallinvestor-ownedenterprisesandothertypesoforganizations,suchasmutualinsurancecompaniesandothermutualco-operativeentitiesthatprovidedividends,lowercosts,orothereconomicbenefitsdirectlyandpropor-tionatelytotheirowners,members,orparticipants.
–ExamplesoforganizationsthatclearlyfallwithinthefocusofthisStatementincludemosthumanserv-iceorganizations,churches,foundations,andsomeotherorganizations,suchasthoseprivatenonprofithospitalsandnonprofitschoolsthatreceiveasignificantportionoftheirfinancialresourcesfromsourcesotherthanthesaleofgoodsandservices.
–Borderlinecasesmayexistwhereorganizationspossesssomeofthedistinguishingcharacteristicsbutnotothers.Examplesarethoseprivatenonprofithospitalsandnonprofitschoolsthatmayreceiverela-tivelysmallamountsofcontributionsandgrantsbutfinancetheircapitalneedslargelyfromtheproceedsofdebtissuesandtheiroperatingneedslargelyfromservicecharges.Asaresult,theobjectivesofCon-ceptsStatement1maybemoreappropriateforthoseorganizations.
•TheobjectivesinthisStatementstemfromthecommoninterestsofthosewhoprovideresourcestonon-businessorganizationsintheservicesthoseorganizationsprovideandtheircontinuingabilitytoprovideservices.•Nonbusinessorganizationsgenerallyhavenosingleindicatorofperformancecomparabletoabusinessen-terprise’sprofit.Thus,otherindicatorsofperformanceusuallyareneeded.•Theperformanceofnonbusinessorganizationsgenerallyisnotsubjecttothetestofdirectcompetitioninmarketstotheextentthatbusinessenterprisesare.–Otherkindsofcontrolsintroducedtocompensateforthelesserinfluenceofmarketsareamajorcharac-teristicoftheiroperationsandaffecttheobjectivesoftheirfinancialreporting.Controls,suchasformalbudgetsanddonorrestrictionsontheuseofresources,givemanagersaspecialresponsibilitytoensurecompliance.Informationaboutdeparturesfromthosemandatesisimportantinassessinghowwellman-agershavedischargedtheirstewardshipresponsibilities.
•TheobjectivesinthisStatementapplytogeneralpurposeexternalfinancialreportingbynonbusinessorganizations.–Theobjectivesstemprimarilyfromtheneedsofexternaluserswhogenerallycannotprescribetheinfor-mationtheywantfromanorganization.
–Inadditiontoinformationprovidedbygeneralpurposeexternalfinancialreporting,managersand,tosomeextent,governingbodiesneedagreatdealofinternalaccountinginformationtocarryouttheirresponsibilitiesinplanningandcontrollingactivities.Thatinformationandinformationdirectedatmeet-ingthespecializedneedsofusershavingthepowertoobtaintheinformationtheyneedarebeyondthescopeofthisStatement.
•Theobjectivesoffinancialreportingareaffectedbytheeconomic,legal,political,andsocialenvironmentinwhichfinancialreportingtakesplace.–Theoperatingenvironmentsofnonbusinessorganizationsandbusinessenterprisesaresimilarinmanyways.Bothnonbusinessorganizationsandbusinessenterprisesproduceanddistributegoodsandserv-icesandusescarceresourcesindoingso.
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–Differencesbetweennonbusinessorganizationsandbusinessenterprisesariseinthewaystheyobtainresources.Noneconomicreasonsarecommonlyfactorsindecisionstoprovideresourcestoparticularnonbusinessorganizations.
•Theobjectivesalsoareaffectedbythecharacteristicsandlimitationsofthekindofinformationthatfinan-cialreportingcanprovide.–Theinformationprovidedbyfinancialreportingisprimarilyfinancialinnature:Itisgenerallyquantifiedandexpressedinunitsofmoney.However,quantifiedinformationexpressedintermsotherthanunitsofmoneyandnonquantifiedinformationmaybeneededtounderstandthesignificanceofinformationex-pressedinunitsofmoneyortohelpinassessingtheperformanceofanonbusinessorganization.–Theinformationprovidedbyfinancialreportingpertainstoindividualreportingentities,oftenresultsfromapproximateratherthanexactmeasures,largelyreflectstheeffectsoftransactionsandeventsthathavealreadyhappened,isbutonesourceofinformationneededbythosewhomakedecisionsaboutnonbusinessorganizations,andisprovidedandusedatacost.•Theobjectivesstatethat:
–Financialreportingbynonbusinessorganizationsshouldprovideinformationthatisusefultopresentandpotentialresourceprovidersandotherusersinmakingrationaldecisionsabouttheallocationofre-sourcestothoseorganizations.
–Financialreportingshouldprovideinformationtohelppresentandpotentialresourceprovidersandotherusersinassessingtheservicesthatanonbusinessorganizationprovidesanditsabilitytocontinuetoprovidethoseservices.
–Financialreportingshouldprovideinformationthatisusefultopresentandpotentialresourceprovidersandotherusersinassessinghowmanagersofanonbusinessorganizationhavedischargedtheirsteward-shipresponsibilitiesandaboutotheraspectsoftheirperformance.
–Financialreportingshouldprovideinformationabouttheeconomicresources,obligations,andnetre-sourcesofanorganization,andtheeffectsoftransactions,events,andcircumstancesthatchangere-sourcesandinterestsinthoseresources.
–Financialreportingshouldprovideinformationabouttheperformanceofanorganizationduringape-riod.Periodicmeasurementofthechangesintheamountandnatureofthenetresourcesofanonbusi-nessorganizationandinformationabouttheserviceeffortsandaccomplishmentsofanorganizationto-getherrepresenttheinformationmostusefulinassessingitsperformance.
–Financialreportingshouldprovideinformationabouthowanorganizationobtainsandspendscashorotherliquidresources,aboutitsborrowingandrepaymentofborrowing,andaboutotherfactorsthatmayaffectanorganization’sliquidity.
–Financialreportingshouldincludeexplanationsandinterpretationstohelpusersunderstandfinancialin-formationprovided.
•BackgroundinformationrelatingtothedevelopmentofthisStatementisincludedinparagraphs57–66.Paragraph67containsacomparisonoftheobjectivesinthisStatementtothoseinConceptsStatement1.
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FASBStatementofConcepts
StatementofFinancialAccountingConceptsNo.4
ObjectivesofFinancialReportingbyNonbusinessOrganizations
STATEMENTSOFFINANCIALACCOUNTINGCONCEPTS
ThisStatementofFinancialAccountingConceptsisoneofaseriesofpublicationsintheBoard’sconceptualframeworkforfinancialaccountingandreporting.State-mentsintheseriesareintendedtosetforthobjectivesandfundamentalsthatwillbethebasisfordevelopmentoffinancialaccountingandreportingstandards.Theob-jectivesidentifythegoalsandpurposesoffinancialre-porting.Thefundamentalsaretheunderlyingconceptsoffinancialaccounting—conceptsthatguidetheselec-tionoftransactions,events,andcircumstancestobeac-countedfor;theirrecognitionandmeasurement;andthemeansofsummarizingandcommunicatingthemtoin-terestedparties.Conceptsofthattypearefundamentalinthesensethatotherconceptsflowfromthemandre-peatedreferencetothemwillbenecessaryinestablish-ing,interpreting,andapplyingaccountingandreportingstandards.
Theconceptualframeworkisacoherentsystemofin-terrelatedobjectivesandfundamentalsthatisexpectedtoleadtoconsistentstandardsandthatprescribesthena-ture,function,andlimitsoffinancialaccountingandre-porting.Itisexpectedtoservethepublicinterestbypro-vidingstructureanddirectiontofinancialaccountingandreportingtofacilitatetheprovisionofevenhandedfinancialandrelatedinformationthathelpspromotetheefficientallocationofscarceresourcesintheeconomyandsociety,includingassistingcapitalandothermarketstofunctionefficiently.
Establishmentofobjectivesandidentificationoffun-damentalconceptswillnotdirectlysolvefinancialac-countingandreportingproblems.Rather,objectivesgivedirectionandconceptsaretoolsforsolvingproblems.
TheBoarditselfislikelytobethemostdirectbenefi-ciaryoftheguidanceprovidedbytheStatementsinthisseries.TheywillguidetheBoardindevelopingaccount-ingandreportingstandardsbyprovidingtheBoardwithacommonfoundationandbasicreasoningonwhichtoconsidermeritsofalternatives.
However,knowledgeoftheobjectivesandconceptstheBoardwilluseindevelopingstandardsalsoshouldenablethosewhoareaffectedbyorinterestedinfinan-cialaccountingstandardstounderstandbetterthepur-poses,content,andcharacteristicsofinformationpro-videdbyfinancialaccountingandreporting.Thatknowledgeisexpectedtoenhancetheusefulnessof,andconfidencein,financialaccountingandreporting.Theconceptsalsomayprovidesomeguidanceinanalyzingneworemergingproblemsoffinancialaccountingandreportingintheabsenceofapplicableauthoritativepro-nouncements.
StatementsofFinancialAccountingConceptsdonotestablishstandardsprescribingaccountingproceduresordisclosurepracticesforparticularitemsorevents,whichareissuedbytheBoardasStatementsofFinancialAc-countingStandards.Rather,Statementsinthisseriesde-scribeconceptsandrelationsthatwillunderliefuturefi-nancialaccountingstandardsandpracticesandinduecourseserveasabasisforevaluatingexistingstandardsandpractices.*
TheBoardrecognizesthatincertainrespectscurrentgenerallyacceptedaccountingprinciplesmaybeincon-sistentwiththosethatmayderivefromtheobjectivesandconceptssetforthinStatementsinthisseries.How-ever,aStatementofFinancialAccountingConceptsdoesnot(a)requireachangeinexistinggenerallyac-ceptedaccountingprinciples;(b)amend,modify,orin-terpretStatementsofFinancialAccountingStandards,InterpretationsoftheFASB,OpinionsoftheAccountingPrinciplesBoard,orBulletinsoftheCommitteeonAc-countingProcedurethatareineffect;or(c)justifyeitherchangingexistinggenerallyacceptedaccountingandre-portingpracticesorinterpretingthepronouncementslistedinitem(b)basedonpersonalinterpretationsoftheobjectivesandconceptsintheStatementsofFinancialAccountingConcepts.
SinceaStatementofFinancialAccountingConceptsdoesnotestablishgenerallyacceptedaccountingprin-ciplesorstandardsforthedisclosureoffinancialinfor-mationoutsideoffinancialstatementsinpublishedfi-nancialreports,itisnotintendedtoinvokeapplicationofRule203or204oftheRulesofConductoftheCodeof
*GenerallyacceptedaccountingprinciplesfornonbusinessorganizationsareprimarilysetforthinpublicationsoftheAmericanInstituteofCertifiedPublicAccountants(AICPA)andotherbodies,suchastheNationalCouncilonGovernmentalAccounting(NCGA).TheBoardhasagreedtoexerciseresponsibility,exceptasnotedbelow,forallthespecializedaccountingandreportingprinciplesandpracticesinAICPAStatementsofPositionandGuidesthatareneithersupersededbynorcontainedinAccountingResearchBulletins,AccountingPrinciplesBoardOpinions,FASBStatements,andFASBInterpretations.TheBoarddeferredsimilaractionwithregardtothosespecializedaccountingandreportingprinciplesandpracticescontainedintheAICPAIndustryAuditGuide,AuditsofStateandLocalGovernmentalUnits,andthethreeStatementsofPosition(75-3,AccrualsofRevenuesandExpendituresbyStateandLocalGovernmentalUnits;77-2,AccountingforInterfundTransfersofStateandLocalGovernmentalUnits;and80-2,AccountingandFinancialReportingbyGovernmentalUnits)thatsupplementthatGuide.Insodoing,theBoardnotedthatatthepresenttimetheaccountingandreportingbysuchgovernmentalunitsisaddressedbytheAICPAandtheNCGA.TheBoardalsonotedthatdiscussionsarecontinuingamonginterestedparties,includingtheAICPA,theFinancialAccountingFoundation(FAF),andNCGA,astowhattheappropriatestructureforac-countingstandardsettingforsuchgovernmentalunitsshouldbe.Untilthematterisresolved,theFASBproposesnochangeswithrespecttoitsinvolve-mentwithpronouncementsinthatarea(paragraphs3–5).
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ObjectivesofFinancialReportingby
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ProfessionalEthicsoftheAmericanInstituteofCertifiedPublicAccountants(orsuccessorrulesorarrangementsofsimilarscopeandintent).*
LikeotherpronouncementsoftheBoard,aStatementofFinancialAccountingConceptsmaybeamended,su-perseded,orwithdrawnbyappropriateactionundertheBoard’sRulesofProcedure.
No.3,ElementsofFinancialStatementsofBusinessEnterprises(December1980)
DiscussionMemorandumsandInvitationstoCommentHavingIssuesBeing(orYettoBe)ConsideredbytheBoard
ElementsofFinancialStatementsandTheirMeas-urement(December2,1976)ReportingEarnings(July31,1979)
FinancialStatementsandOtherMeansofFinancialReporting(May12,1980)
ReportingFundsFlows,Liquidity,andFinancialFlexibility(December15,1980)OtherProjectsinProcessAccountingRecognitionCriteria
FASBPUBLICATIONSONCONCEPTUALFRAMEWORK
StatementsofFinancialAccountingConceptsNo.1,ObjectivesofFinancialReportingbyBusinessEnterprises(November1978)
No.2,QualitativeCharacteristicsofAccountingIn-formation(May1980)CONTENTS
ParagraphNumbers
Highlights
IntroductionandBackground.........................................................................Scope..............................................................................................General.........................................................................................StateandLocalGovernmentalUnits...........................................................DistinguishingCharacteristicsofNonbusinessOrganizations.................................GeneralPurposeExternalFinancialReporting....................................................EnvironmentalContextofObjectives.............................................................CharacteristicsandLimitationsofInformationProvidedbyFinancialReporting................TypesofUsersandTheirInterests................................................................ObjectivesofFinancialReporting....................................................................InformationUsefulinMakingResourceAllocationDecisions...................................InformationUsefulinAssessingServicesandAbilitytoProvideServices.......................InformationUsefulinAssessingManagementStewardshipandPerformance...................InformationaboutEconomicResources,Obligations,NetResources,andChangesinThem....EconomicResources,Obligations,andNetResources........................................OrganizationPerformance.....................................................................NatureofandRelationbetweenInflowsandOutflows.....................................ServiceEffortsandAccomplishments......................................................Liquidity.......................................................................................Managers’ExplanationsandInterpretations......................................................TheNonbusinessObjectivesProject—APerspective................................................AppendixA:BackgroundInformation...............................................................BriefHistoryofFASBNonbusinessObjectivesProject..........................................StateandLocalGovernmentalUnits..............................................................AppendixB:ComparisonofObjectivesinThisStatementtoThoseinConceptsStatement1......
1–321–91–23–56–910–1213–2223–2829–3233–5535–3738–3940–4243–5444–4647–5348–5051–5354555657–6657–6465–6667
*Rule203prohibitsamemberoftheAmericanInstituteofCertifiedPublicAccountantsfromexpressinganopinionthatfinancialstatementsconformwithgenerallyacceptedaccountingprinciplesifthosestatementscontainamaterialdeparturefromanaccountingprinciplepromulgatedbytheFinan-cialAccountingStandardsBoard,unlessthemembercandemonstratethatbecauseofunusualcircumstancesthefinancialstatementsotherwisewouldhavebeenmisleading.Rule204requiresmembersoftheInstitutetojustifydeparturesfromstandardspromulgatedbytheFinancialAccountingStand-ardsBoardforthedisclosureofinformationoutsideoffinancialstatementsinpublishedfinancialreports.
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FASBStatementofConcepts
INTRODUCTIONANDBACKGROUNDScopeGeneral
1.ThisStatementestablishestheobjectivesofgen-eralpurposeexternalfinancialreportingbynonbusi-nessorganizations.Thoseobjectives,togetherwiththeobjectivessetforthinFASBConceptsStatementNo.1,ObjectivesofFinancialReportingbyBusinessEnterprises,willserveasthefoundationofthecon-ceptualframeworktheBoardisdevelopingforfinan-cialaccountingandreporting.Basedonitsreviewofthesimilaritiesanddifferencesbetweenthosetwosetsofobjectives,theBoardhasconcludedthatitisnotnecessarytodevelopanindependentconceptualframeworkforanyparticularcategoryofentities(e.g.,nonbusinessorganizationsorbusinessenter-prises).Rather,itsgoalistodevelopanintegratedconceptualframeworkthathasrelevancetoallenti-tiesandthatprovidesappropriateconsiderationofanydifferentreportingobjectivesandconceptsthatmayapplytoonlycertaintypesofentities.Consider-ationofthedifferencesbetweentheobjectivesoffi-nancialreportingsetforthinthisStatementandthoseinConceptsStatement1willbemostusefulinhelp-ingtoidentifythoseareasthatmayrequireuniquetreatment.AppendixAtothisStatementprovidesbackgroundinformation.AppendixBcomparestheobjectivesofthisStatementandConceptsState-ment1,notingthemanyareasofsimilarityandthefew,butimportant,areasofdifference(paragraph9).2.ThisStatementusesterminologythathasbeenchosencarefullytoavoidprejudgingissuesthatmaybesubjectsofotherconceptualframeworkprojects.Forexample,itusesthetermsresourceinflowsandoutflowsratherthanrevenues,expenses,andexpendi-tures.ThereasonsfortheBoard’sconclusionsarein-cludedinthetextratherthaninaseparateappendix.StateandLocalGovernmentalUnits
3.Fromitsoutset,theprojectleadingtothisState-menthasincludedgovernmentalunitsinitsscope,andtheExposureDraftincludedgovernmentalex-amples.Onthebasisofitsstudytodate,theBoardisawareofnopersuasiveevidencethattheobjectivesinthisStatementareinappropriateforgeneralpur-poseexternalfinancialreportsofgovernmentalunits.
Nonetheless,theappropriatestructureforsettingfi-nancialaccountingandreportingstandardsforstateandlocalgovernmentalunitscontinuestobedis-cussed.1Pendingresolutionofthatissue,theBoardhasdeferredafinaldecisiononwhethertheobjec-tivessetforthinthisStatementshouldapplytogen-eralpurposeexternalfinancialreportingbystateandlocalgovernmentalunits.
4.Iftheresponsibilityforstandardsettingwasulti-matelygiventotheFinancialAccountingStandardsBoard,theBoardwouldexpecttoconsiderthefind-ingsofresearchinprocessbytheNationalCouncilonGovernmentalAccounting(NCGA),theCouncilofStateGovernments(CSG)(paragraphs65and66),andotherinterveningresearch.Beforereachingade-cision,itwouldalsosolicitadditionalviewsregard-ingtheapplicabilityoftheconclusionsinthisState-menttogeneralpurposeexternalfinancialreportingofstateandlocalgovernmentalunits.
5.Basedonitsstudy,theBoardbelievesthattheob-jectivesofgeneralpurposeexternalfinancialreport-ingforgovernment-sponsoredentities(forexample,hospitals,universities,orutilities)engagedinactivi-tiesthatarenotuniquetogovernmentshouldbesimilartothoseofbusinessenterprisesorothernon-businessorganizationsengagedinsimilaractivities.Accordingly,examplesofsuchgovernment-sponsoredorganizationsandactivitiesareincludedinthesectionsofthisStatementthatdiscusstheenvi-ronmentinwhichnonbusinessorganizationsoperateandtheusersoftheirfinancialreports.DistinguishingCharacteristicsofNonbusinessOrganizations
6.Themajordistinguishingcharacteristicsofnon-businessorganizationsinclude:
a.Receiptsofsignificantamountsofresourcesfromresourceproviderswhodonotexpecttoreceiveeitherrepaymentoreconomicbenefitsproportion-atetoresourcesprovided
b.Operatingpurposesthatareotherthantoprovidegoodsorservicesataprofitorprofitequivalentc.Absenceofdefinedownershipintereststhatcanbesold,transferred,orredeemed,orthatcon-veyentitlementtoashareofaresidualdistributionofresourcesintheeventofliquidationoftheorganization.
1TheBoardrecognizesthatstandardsettingforthefederalgovernmentisnotinquestion.AlthoughtheBoardseesnoconceptualreasonswhy
theobjectivesinthisStatementcouldnotbeappliedtogeneralpurposeexternalfinancialreportingbythefederalgovernment,theBoardac-knowledgesthatdeterminationistheresponsibilityofothers.
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Thesecharacteristicsresultincertaintypesoftrans-actionsthatarelargely,althoughnotentirely,absentinbusinessenterprises,suchascontributionsandgrants,2andtotheabsenceoftransactionswithown-ers,suchasissuingandredeemingstockandpayingdividends.Becausetheauthoritativeaccountinglit-eraturehaslargelyfocusedonproblemscommonlyencounteredinbusinessenterprises,ithasnotdealtcomprehensivelywiththeseuniqueareasinnonbusi-nessorganizations.
7.ThisStatementfocusesonorganizationsthathavepredominantlynonbusinesscharacteristicsthatheavilyinfluencetheoperationsoftheorganization.Thelinebetweennonbusinessorganizationsandbusinessenterprisesisnotalwayssharpsincethein-cidenceandrelativeimportanceofthosecharacteris-ticsinanyorganizationaredifferent.Thissuggeststhat,forpurposesofdevelopingfinancialreportingobjectives,aspectrumoforganizationsexistsrangingfromthosewithclearlydominantnonbusinesschar-acteristicstothosewithwhollybusinesscharacteris-tics.Examplesoforganizationsthatclearlyfallout-sidethefocusofthisStatementincludeallinvestor-ownedenterprisesandothertypesoforganizations,suchasmutualinsurancecompaniesandothermu-tualcooperativeentitiesthatprovidedividends,lowercosts,orothereconomicbenefitsdirectlyandproportionatelytotheirowners,members,orpartici-pants.TheobjectivesoffinancialreportingsetforthinConceptsStatement1areappropriateforthosetypesoforganizations.ExamplesoforganizationsthatclearlyfallwithinthefocusofthisStatementin-cludemosthumanserviceorganizations,churches,foundations,andsomeotherorganizations,suchasthoseprivatenonprofithospitalsandnonprofitschoolsthatreceiveasignificantportionoftheirfi-2nancialresourcesfromsourcesotherthanthesaleofgoodsandservices.3Ashappenswithanydistinc-tion,therewillbeborderlinecases.Thiswillbetrueespeciallyfororganizationsthatpossesssomeofthedistinguishingcharacteristicsofnonbusinessorgani-zationsbutnotothers.
8.Someorganizationshavenoownershipinterestsbutareessentiallyself-sustainingfromfeestheychargeforgoodsandservices.Examplesarethoseprivatenonprofithospitalsandnonprofitschoolsthatmayreceiverelativelysmallamountsofcontribu-tionsandgrantsbutfinancetheircapitalneedslargelyfromtheproceedsofdebtissuesandtheiroperatingneedslargelyfromservicechargesratherthanfromprivatephilanthropyorgovernmentalgrants.Asare-sult,assessmentofamounts,timing,anduncertaintyofcashflowsbecomesthedominantinterestoftheircreditorsandotherresourceprovidersandprofitabil-itybecomesanimportantindicatorofperformance.Consequently,theobjectivesofConceptsStatement1maybemoreappropriateforthoseorganizations.49.TheobjectivesinthisStatementstemfromthecommoninterestsofthosewhoprovideresourcestononbusinessorganizationsintheservicesthoseor-ganizationsprovideandtheircontinuingabilitytoprovideservices.Incontrast,theobjectivesoffinan-cialreportingofConceptsStatement1stemfromtheinterestsofresourceprovidersintheprospectsofre-ceivingcashasareturnofandreturnontheirinvest-ment.5Despitedifferentinterests,resourceprovidersofallentitieslooktoinformationabouteconomicre-sources,obligations,netresources,andchangesinthemforinformationthatisusefulinassessingtheirinterests.Allsuchresourceprovidersfocusonindica-torsoforganizationperformanceandinformation
ThesetypesoftransactionsareclassifiedinAPBStatementNo.4,BasicConceptsandAccountingPrinciplesUnderlyingFinancialStatementsofBusinessEnterprises,asnonreciprocaltransfers.Nonreciprocaltransfersarethereindefinedas“transfersinonedirectionofresourcesorobli-gations,eitherfromtheenterprisetootherentitiesorfromotherentitiestotheenterprise”(paragraphs62and182).Twotypesofsuchtransfersnotedare:(a)transfersbetweentheenterpriseanditsownersand(b)transfersbetweentheenterpriseandentitiesotherthanowners.Transactionsofthesecondtypefrequentlyarefoundinnonbusinessorganizations.3TheFASBResearchReport,FinancialAccountinginNonbusinessOrganizations,distinguishestwotypesofnonprofitorganizationsbased“onadifferenceinthesourceofthefinancialresources”(page161).ATypeAnonprofitorganizationisthereindefinedas“anonprofitorganizationwhosefinancialresourcesareobtained,entirely,oralmostentirely,fromrevenuesfromthesaleofgoodsandservices”(page162).ATypeBnonprofitorganization,incontrast,isdefinedas“anonprofitorganizationthatobtainsasignificantamountoffinancialresourcesfromsourcesotherthanthesaleofgoodsandservices”(page162).TheTypeBcategorycorrespondstothetypeoforganizationsthatclearlyfallswithinthefocusofthisStatement.
4TheorganizationsdescribedinthisparagraphcorrespondtotheTypeAcategorydescribedintheprecedingfootnote.Totheextent,however,thatTypeAorganizationshavetheuniquetransactionsdescribedinparagraph6,theynaturallywillbeimpactedbystandardspromulgatedbytheBoardinthoseareas.5Creditorsofnonbusinessorganizationsarealsointerestedinreceivingcash.Becauseofthedifferencesinenvironment(principallythemotiva-tionsofotherresourceproviders)anddifferentindicatorsoftheperformanceofanonbusinessorganization,creditorsalsolooktoinformationusefulinassessingtheservicesthattypeoforganizationprovidesanditsabilitytocontinuetoprovideservicestosatisfytheirbasicinterestintheprospectforcashflows.
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FASBStatementofConcepts
aboutmanagementstewardship.Nonbusinessorgan-izationsgenerallyhavenosingleindicatorofper-formancecomparabletoabusinessenterprise’sprofit.Thus,otherindicatorsofperformanceareusu-allyneeded.ThisStatementsetsforthtwoperform-anceindicatorsfornonbusinessorganizations:infor-mationaboutthenatureofandrelationbetweeninflowsandoutflowsofresourcesandinformationaboutserviceeffortsandaccomplishments.More-over,theperformanceofnonbusinessorganizationsgenerallyisnotsubjecttothetestofdirectcompeti-tioninmarketstotheextentthatbusinessenterprisesare.Otherkindsofcontrolsintroducedtocompen-sateforthelesserinfluenceofmarketsareamajorcharacteristicoftheiroperationsandaffecttheobjec-tivesoftheirfinancialreporting.Controls,suchasformalbudgetsanddonorrestrictionsontheuseofresources,givemanagersaspecialresponsibilitytoensurecompliance.Informationaboutdeparturesfromthosemandatesthatmayimpingeuponanorga-nization’sfinancialperformanceoritsabilitytopro-videasatisfactorylevelofservicesisimportantinas-sessinghowwellmanagershavedischargedtheirstewardshipresponsibilities.Paragraphs13–22com-paretheenvironmentsofnonbusinessorganizationsandbusinessenterprisesandprovideabasisforthesimilaritiesanddifferencesnotedinthissectionandelsewhereinthisStatement.
GeneralPurposeExternalFinancialReporting10.TheobjectivesinthisStatementapplytogeneralpurposeexternalfinancialreportingbynonbusinessorganizations.Theaimofthattypeoffinancialre-portingislimited.Itdoesnotattempttomeetallin-formationalneedsofthoseinterestedinnonbusinessorganizationsnortofurnishallthetypesofinforma-tionthatfinancialreportingcanprovide.Forex-ample,althoughmanagersandgoverningbodiesofnonbusinessorganizationsareinterestedintheinfor-mationprovidedbygeneralpurposeexternalfinan-cialreporting,theyalsoneedadditionalinformationtohelpthemcarryouttheirplanning,controlling,andotherstewardshipresponsibilities(paragraph32).Norisgeneralpurposeexternalfinancialreportingintendedtomeetspecializedneedsofregulatorybod-
ies,somedonorsorgrantors,orothershavingtheau-thoritytoobtaintheinformationtheyneed(para-graph31).Rather,generalpurposeexternalfinancialreportingfocusesonprovidinginformationtomeetthecommoninterestsofexternaluserswhogenerallycannotprescribetheinformationtheywantfromanorganization.Thoseusersmustusetheinformationthatiscommunicatedtothembytheorganization.Themostobviousandimportantusersfittingthatde-scriptioninthenonbusinessenvironmentarere-sourceproviders,suchasmembers,taxpayers,con-tributors,andcreditors(paragraph36).
11.TheobjectivesinthisStatementarenotrestrictedtoinformationcommunicatedbyfinancialstate-ments.Financialreportingincludesnotonlyfinancialstatementsbutalsoothermeansofcommunicatinginformationthatrelates,directlyorindirectly,totheinformationprovidedbytheaccountingsystem,thatis,informationaboutanorganization’sresourcesandobligations.6
12.Forconvenience,financialreportingisusedinplaceofgeneralpurposeexternalfinancialreportingbynonbusinessorganizationsintheremainderofthisStatement.
EnvironmentalContextofObjectives
13.Financialreportingisnotanendinitselfbutisintendedtoprovideinformationthatisusefulinmak-ingeconomicdecisions—formakingreasonedchoicesamongalternativeusesofscarceresources.7Thus,theobjectivesinthisStatementstemlargelyfromtheneedsofthoseforwhomtheinformationisintended.Thoseneedsdependsignificantlyontheac-tivitiesofnonbusinessorganizationsandthedeci-sionsthatusersoftheinformationmakeaboutthem.Accordingly,theobjectivesinthisStatementareaf-fectedbytheeconomic,legal,political,andsocialen-vironmentwithinwhichthoseorganizationsfunctionintheUnitedStates.Theobjectivesarealsoaffectedbythecharacteristicsandlimitationsoftheinforma-tionthatfinancialreportingcanprovide(para-graphs23–28).
6DistinctionsbetweenfinancialreportingandfinancialstatementsarediscussedatmorelengthinConceptsStatement1(paragraphs5–8),and
arethesubjectofanotherphaseoftheBoard’sconceptualframeworkproject.
7Economicdecisionsaboutnonbusinessorganizationsmaytakedifferentformsdependingonthefactorsthatareevidentintheresourcealloca-
tionprocessaffectinganorganization.Forexample,ifanelementofcompulsionispresentasitiswithmemberspayingduesortaxpayerspayingtaxes,thisStatementdescribesprocesses,suchasapprovalofbudgets,elections,referendums,andinvolvementinlegislativeprocesses,throughwhichresourceprovidersdecideorinfluencedecisionsaboutmattersthataffecttheamountanduseofresourcesallocatedtoorganizations.Amembermaydiscontinuemembershiporataxpayermaychoosetolocateinonegovernmentaljurisdictionratherthananotherasaresultofassessmentoftheirrespectivepolicies.Thatkindofactionalsorepresents,inpart,theresultofaneconomicdecision.
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14.Theoperatingenvironmentsofnonbusinessor-ganizationsandbusinessenterprisesaresimilarinmanyways.Bothnonbusinessorganizationsandbusinessenterprisesproduceanddistributegoodsorservicesandusescarceresourcesindoingso.Theysometimesprovideessentiallythesamegoodsorservices.Forexample,bothmunicipaltransportationsystemssignificantlysubsidizedbygeneraltaxrev-enuesandprivatebuslinesmaycarrypassengerswithinalargecity,andbothprivatenonprofitorgani-zationssupportedbysignificantphilanthropyandinvestor-ownedenterprisesmayoperatetheatrical,dance,andmusicalorganizations.8Bothnonbusinessorganizationsandbusinessenterprisesobtainre-sourcesfromexternalsourcesandareaccountabletothosewhoprovideresourcesortheirrepresentatives.Bothareintegralpartsofthenationaleconomyandinterrelatedirectlyorindirectlywithotherorganiza-tions.Bothownorcontrolsuppliesofresources,someofwhichareusedincurrentoperationsandsomeofwhichareheldforuseinfutureperiods.Bothincurobligations.Somenonbusinessorganiza-tions,aswellasbusinessenterprises,incurandpaytaxes,andbotharesubjecttogovernmentallawsandregulations.Bothmustbefinanciallyviable:Toachievetheiroperatingobjectives,theymust,inthelongrun,receiveatleastasmanyresourcesastheyneedtoprovidegoodsandservicesatlevelssatisfac-torytoresourceprovidersandotherconstituents.9Bothgenerallyobtainresourcesfromthesamepoolofresourceproviders,andtheresourcesavailableforusebyallorganizationsarelimited.
15.Differencesbetweennonbusinessorganizationsandbusinessenterprisesariseprincipallyinthewaystheyobtainresources.Thefollowingdescriptionsbe-ginwithareasofgreatestsimilaritybetweennonbusi-nessorganizationsandbusinessenterprisesandendwiththeareasofgreatestdifference.
16.Bothnonbusinessorganizationsandbusinessen-terprisesobtainresourcesinexchangetransactionsinmarkets.Bothobtainlabor,materials,andfacilitiesortheirusebypayingforthemoragreeingtopayfortheminthefuture.10Bothmayborrowfundsthroughbankloans,mortgages,orotherdirectloansorthroughissuingdebtsecuritiestocreditorswhocom-monlymayevaluateandcomparetherisksandre-8turnsofsecuritiesofbothnonbusinessorganizationsandbusinessenterprises.
17.Bothnonbusinessorganizationsandbusinessen-terprisesmayobtainresourcesbychargingapriceorfeeforgoodsorservicestheyprovide,butthepur-poseofsalesofgoodsorservicesisdifferent.Somenonbusinessorganizationsmaysellgoodsorservicesatpricesthatequalorexceedcosts,butmanynon-businessorganizationscommonlyprovidegoodsorservicesatpriceslessthancosts.Nonbusinessorgan-izationsalsocommonlyprovidegoodsorservicesfreeofcharge.Moreover,thosethatchargepricessufficienttocovercostsoftenuseresourcesfromthosesalestosubsidizeotheractivitieswithintheor-ganization.Forexample,thefootballorbasketballprogramatacollegeoruniversitymayfinancebothintercollegiateandintramuralathleticprograms.Al-thoughsalesofgoodsorservicesmaybeimportantsourcesoffinancingforsomenonbusinessorganiza-tions,nonbusinessorganizationsgenerallyarenotex-pectedtoanddonotneedtocoverallcosts,andper-hapsearnprofits,bysalesbecausetheyrelysignificantlyonothercontinuingsourcesoffinancing(paragraph18).Forexample,somenonbusinessor-ganizationshavethepowertoassessdues,taxes,orothercompulsorycontributions,andothersdependsignificantlyonvoluntarycontributions.Incontrast,businessenterprisesattempttosellgoodsorservicesatpricesthatenablethemtorepayorcompensateallresourceproviders,includingownersandotherswhoexpectamonetaryreturnforprovidingresources.Profitisthebasisforcompensatingownersandoth-ersforprovidingresources,andexpectationsofprofitarenecessarytoattractresources.Moreover,unprof-itablebusinessenterprisesfinditincreasinglydiffi-culttoborroworotherwiseobtainresources.Salesofgoodsorservicesarenotonlysignificantsourcesofresourcesforbusinessenterprisesbutalsounderlietheirabilitytoobtainresourcesfromothersources.18.Members,contributors,taxpayers,andotherswhoprovideresourcestononbusinessorganizationsdosoforreasonsdifferentfromthoseofownersofbusinessenterprises.Allnonbusinessorganizationsobtainsignificantresourcesfromresourceproviderswhoeitherexpectnoeconomicbenefitsorexpect
Othernonprofitorganizations(paragraph8)lackingallthedistinguishingcharacteristicsofnonbusinessorganizationsalsomayprovidetheservicesdescribedinthissentence.
9Somenonbusinessorganizationsareestablishedforshort-termpurposesandarenotintendedtosurviveaftercompletingtheiroperatingobjec-tives,suchasanorganizationestablishedtoerectamemorial.
10Nonbusinessorganizationsalsomayreceivesignificantdonationsoflabor,materials,andfacilitiesortheirusefromresourceproviders.
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benefitsreceivednottobeproportionatetothere-sourcesprovided.Thoseresourcesareoftenprovidedforcharitable,humanitarian,religious,orothernon-economicreasons.11Asaresult,thosewhoprovideresourcestoanonbusinessorganizationandthosewhobenefitfromthegoodsorservicesitprovidesmaybedifferentindividualsorgroups.Ownersofbusinessenterprises,incontrast,generallyexpectre-turnsthroughdividendsorpriceappreciationoftheirsecuritiescommensuratewiththeperceivedrisk.19.Astheprecedingparagraphsindicate,noneco-nomicreasonsarecommonlyfactorsindecisionstoprovideresourcestoparticularnonbusinessorganiza-tions.Forexample,contributors12tophilanthropicorganizations,suchascharities,andtosomemem-bershiporganizations,suchaschurches,generallyseeknodirecteconomicbenefits.Rather,theirrea-sonsforvoluntarilyprovidingresourcesrelatetotheirinterestsinfurtheringthepurposeandgoalsoftheorganization.Thegoalsmayinvolveawiderangeofendeavorsincludingthoseofacharitable,cultural,educational,economic,religious,scientific,social,orpoliticalnature.Somekindsofmembershiporgani-zations,suchasprofessionalandtradeassociations,assessmembershipdues.Personsjoiningtheseor-ganizationsoftenseeknoneconomicbenefits,suchasrecognitionorprestige,inadditiontodirectservicebenefits.
20.Nonbusinessorganizationsandbusinessenter-priseshavedifferentdegreesofinvolvementwithmarkets.Mosttransactionsofbusinessenterpriseswithotherentitiesinvolveexchangepricesinactivemarkets;thatmarketmechanismprovidesameasureoftheutilityandsatisfactionofgoodsandservicesbusinessesbuyandsellandoftheoverallperform-anceofthoseenterprises.Nonbusinessorganizationsalsoborrowmoneyandbuygoodsandservicesinmarketsandmayormaynotsellgoodsorservicesinmarkets.However,markettransactionsplayamorelimitedroleintheresourceallocationprocessofnon-businessorganizationsbecausethoseorganizationsdonotfinancetheiroperationsthroughequitymar-ketsandtheycommonlyreceiveresourcesandpro-videgoodsorservicesinotherthanmarkettransac-tions.Sincemarketcontrolsexisttoalesserdegree
11fornonbusinessorganizationsthanforbusinessen-terprises,otherkindsofcontrolsareintroducedtocompensatefortheirabsence.
21.Resourceprovidersorgoverningbodiesmayre-strictormandatethewaysanonbusinessorganiza-tionmayspendtheresourcesprovided.Spendingmandatesgenerallytakeoneoftwoforms:specificbudgetaryappropriationsordirectrestrictionsbydo-norsorgrantors.Forexample,abudgetaryappropria-tionmaylimittheamountthatachurchmayspendforitseducationalprogramorthatagovernmentalunitmayspendtosubsidizeitspublictransportationsystem,adonororgrantormayspecifythatagifttoamuseummustbeusedtoconstructanewwing,oranagencyofthefederalgovernmentmayspecifythatitsgranttoauniversitymustbeusedformedicalre-search.Thosemandatesgivemanagersofnonbusi-nessorganizationsaspecialresponsibilitytoensurecompliance.Althoughspendingmandatesalsomayexistinbusinessenterprises,theyarelesscommon.Theireffectsontheconductandcontroloftheactivi-tiesofbusinessenterprisesarelesspervasivethaninnonbusinessorganizations.
22.Budgetsareparticularlysignificantinthenon-businessenvironment.Bothbusinessandnonbusi-nessorganizationsusebudgetstoallocateandcontrolusesofresources.However,innonbusinessorganiza-tionsforwhichprovidingresourcesiscompulsory(forexample,manymembershiporganizationsandgovernmentalunits),budgetsaresignificantfactorsnotonlyinallocatingresourceswithinanorganiza-tionbutalsoinobtainingresources.Forexample,budgetsinmembershiporganizationsandgovern-mentalunitsareoftenpivotalinestablishingthelevelofdues,taxes,orfeestobeimposed;thelevelofservicestobeprovided;andthedesiredrelationbe-tweenthetwo.Membersandtaxpayersmayhavetheopportunity,eitherbydirectvoteorthroughelectedrepresentatives,toparticipateindevelopingandap-provingbudgets.Electionsandreferendumsalsoof-feropportunitiestochangepoliciesandtheamountsandusesofresourcesprovided.Inotherkindsofnon-businessorganizations,budgetsmaybeimportantto
Contributorstononbusinessorganizationsoftenprovideresources,suchasproperty,materials,anduncompensatedvolunteerlabor,inadditiontofinancialresources.Inmanynonbusinessorganizations,suchascharitiesandyouthgroups,thesedonatedmaterialsandservicesaresignificantfactorsintheorganization’soperations.Inothernonbusinessorganizations,especiallythoseoperatedbyreligiousbodies,servicescontributedbypersonnelatfarlessthantheirmarketvalueareequallysignificant.Suchdonatedorcontributedservicesandmaterialsarerarelyfoundinbusi-nessenterprises.
12Contributorsincludedonorsandprospectivedonors,grantorsandprospectivegrantors,andfederatedfund-raisingorganizationsthatsolicitcontributionsandthenredistributethosecontributionstononbusinessorganizationsafterdeductingfund-raisingandothercosts.
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voluntarydonorsindecidingwhethertoprovidere-sourcestononbusinessorganizationsandinestab-lishingtheleveloftheirgiving.
CharacteristicsandLimitationsofInformationProvidedbyFinancialReporting
23.Theobjectivesoffinancialreportingbynon-businessorganizationsareaffectednotonlybytheenvironmentinwhichfinancialreportingtakesplacebutalsobythecharacteristicsandlimitationsofthekindofinformationthatfinancialreporting,andpar-ticularlyfinancialstatements,canprovide.Theinfor-mationprovidedbyfinancialreportingisprimarilyfinancialinnature:Itisgenerallyquantifiedandex-pressedintermsofunitsofmoney.Informationthatistobeincorporatedformallyinfinancialstatementsmustbequantifiableintermsofunitsofmoney.Otherinformationcanbedisclosedinfinancialstate-ments(includingnotes)orbyothermeans,butfinan-cialstatementsinvolveadding,subtracting,multiply-ing,anddividingnumbersthatdepicteconomicthingsandeventsandrequireacommondenomina-tor.Quantifiedinformationexpressedintermsotherthanunitsofmoney(suchasnumberofemployeesorunitsofservicesorproductsprovided)andnon-quantifiedinformation(suchasdescriptionsofop-erationsorexplanationsofpolicies)thatarereportednormallyrelatetoorunderliethefinancialinforma-tion.Informationthatisnotexpressedintermsofunitsofmoneymaybeneededtounderstandthesig-nificanceofinformationexpressedintermsofunitsofmoneyortohelpinassessingtheperformanceofanonbusinessorganization(paragraphs47–53).Finan-cialreportingbynonbusinessorganizations,how-ever,islimitedinitsabilitytoprovidedirectmeas-uresofthequalityofgoodsandservicesprovidedintheabsenceofmarket-determinedexchangepricesorthedegreetowhichtheysatisfytheneedsofservicebeneficiariesandotherconsumers.
24.Theinformationprovidedbyfinancialreportingpertainstoindividualnonbusinessreportingentities.ThisStatement,however,doesnotincludecriteriafordeterminingtheappropriatereportingentityforpur-posesoffinancialreportingbynonbusinessorganiza-tions.Thatmatterwillneedtobeaddressedbyotherprojects.13
1325.Theinformationprovidedbyfinancialreportingoftenresultsfromapproximate,ratherthanexact,measures.Themeasurescommonlyinvolvenumer-ousestimates,classifications,summarizations,judg-ments,andallocations.Thus,despitetheauraofpre-cisionthatmayseemtosurroundfinancialreportingingeneralandfinancialstatementsinparticular,withfewexceptionsthemeasuresareapproximationswhichmaybebasedonrulesandconventionsratherthanexactamounts.
26.Theinformationprovidedbyfinancialreportinglargelyreflectstheeffectsoftransactionsandeventsthathavealreadyhappened.Governingbodiesandmanagersmayusebudgetstocommunicateinforma-tionaboutplansorprojections,butmostoftheinfor-mationprovidedbyfinancialreportingishistorical,includingcomparisonsofactualresultswithprevi-ouslyapprovedbudgets.Theacquisitionpriceoflandandthecurrentmarketpriceofamarketableeq-uitysecurityareotherexamplesofhistoricaldatain-cludedinfinancialreports.Nofutureamountsoreventsareinvolved.Estimatesrestingonexpecta-tionsofthefutureareoftenneededinfinancialre-porting,buttheirmajoruse,especiallyofthosefor-mallyincorporatedinfinancialstatements,istomeasurefinancialeffectsofpasttransactionsoreventsorthepresentstatusofanassetorliability.27.Financialreportingisbutonesourceofinforma-tionneededbythosewhomakeeconomicdecisionsaboutnonbusinessorganizations.Theyneedtocom-bineinformationprovidedbyfinancialreportingwithrelevantsocial,economic,andpoliticalinformationfromothersources.
28.Theinformationprovidedbyfinancialreportinginvolvesacosttoprovideanduse.Thecostincludesnotonlytheresourcesdirectlyexpendedtoprovidetheinformationbutalsomayincludeadverseeffectsonanorganizationfromdisclosingit.Forexample,commentsaboutapendinglawsuitmayjeopardizeasuccessfuldefense.Thecollectivetimeneededtoun-derstandanduseinformationisalsoacost.Gener-ally,thebenefitsofinformationprovidedshouldbe
AdiscussionofthereportingentityissuecanbefoundintheFASBResearchReportonfinancialaccountinginnonbusinessorganizations,pages18–21.
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expectedtoatleastequalthecostinvolved.14How-ever,thebenefitsandcostsusuallyaredifficulttomeasure.Differentpersonswillhonestlydisagreeaboutwhetherthebenefitsoftheinformationjustifyitscost.
TypesofUsersandTheirInterests
29.Manypeoplebaseeconomicdecisionsontheirrelationshipstoandknowledgeaboutnonbusinessorganizationsand,thus,areinterestedintheinforma-tionprovidedbyfinancialreporting.Amongpresentandpotentialusersaremembers,taxpayers,contribu-tors,grantors,lenders,suppliers,creditors,employ-ees,managers,directorsandtrustees,servicebenefi-ciaries,financialanalystsandadvisors,brokers,underwriters,lawyers,economists,taxingauthorities,regulatoryauthorities,legislators,thefinancialpressandreportingagencies,laborunions,tradeassocia-tions,researchers,teachers,andstudents.Thefollow-inggroupsareespeciallyinterestedininformationprovidedbythefinancialreportingofanonbusinessorganization:
a.Resourceproviders.Resourceprovidersincludethosewhoaredirectlycompensatedforprovidingresources—lenders,suppliers,andemployees(paragraph16)—andthosewhoarenotdirectlyandproportionatelycompensated—members,contributors,andtaxpayers(paragraph18).15
b.Constituents.Constituentsarethosewhouseandbenefitfromtheservicesrenderedbytheorgani-zation.Insomenonbusinessorganizations,con-stituentsincluderesourceproviders(forexample,memberswhopayduesortaxpayers),anddistin-guishingconstituentsfromresourceprovidersmayservenofunction.However,resourceprovid-ersandservicebeneficiariesarelargelydifferentgroupsorindividualsinsomeorganizations.Thedegreetowhichservicebeneficiariesareadistinc-tivepartofaconstituencydependslargelyontheextentofseparationbetweenthoseprovidingtheresourcesandthoseusingandreceivingtheserv-icebenefits.
c.Governingandoversightbodies.Governingandoversightbodiesarethoseresponsibleforsettingpoliciesandforoverseeingandappraisingmanag-ersofnonbusinessorganizations.Governingbod-
iesincludeboardsoftrustees,boardsofoverseersorregents,legislatures,councils,andotherbodieswithsimilarresponsibilities.Oversightbodiesalsoareresponsibleforreviewingtheorganization’sconformancewithvariouslaws,restrictions,guidelines,orotheritemsofasimilarnature.Oversightbodiesincludenationalheadquartersoforganizationswithlocalchapters,accreditingagencies,agenciesactingonbehalfofcontributorsandconstituents,oversightcommitteesoflegisla-tures,andgovernmentalregulatoryagencies.Insomenonbusinessorganizations,governingbod-iescommonlyareelectedrepresentativesofacon-stituencythatislargelycomprisedofresourcepro-viders.Inothernonbusinessorganizations,governingbodiesmaybeself-perpetuatingthroughelectionoftheirsuccessors.
d.Managers.Managersofanorganizationarere-sponsibleforcarryingoutthepolicymandatesofgoverningbodiesandmanagingtheday-to-dayoperationsofanorganization.Managersincludecertainelectedofficials;managingexecutivesap-pointedbyelectedgoverningbodies,suchasschoolsuperintendents,agencyheads,andexecu-tivedirectors;andstaff,suchasfund-raisingandprogramdirectors.30.Presentandpotentialusersoftheinformationprovidedbyfinancialreportingbyaparticularnon-businessorganizationshareacommoninterestinin-formationabouttheservicesprovidedbythenon-businessorganization,itsefficiencyandeffectivenessinprovidingthoseservices,anditsabilitytocontinuetoprovidethoseservices.Resourceproviders,suchasmembersandcontributors,maybeinterestedinthatinformationasabasisforassessinghowwelltheorganizationhasmetitsobjectivesandwhethertocontinuesupport.Taxpayersmayneedsimilarinfor-mationtohelpthemassesswhethergovernmentalunitsandgovernment-sponsoredentitieshaveachievedtheiroperatingobjectives.Inaddition,theymaywanttoknowhowtheservicesprovidedbythegovernmentalunitorgovernment-sponsoredentityarelikelytoaffecttheamountoftaxesandfeestheywillberequiredtopay.Resourceproviders,suchaslenders,suppliers,andemployees,viewanonbusi-nessorganizationasasourceofpaymentforthecash,
14Paragraphs133–144ofFASBConceptsStatementNo.2,QualitativeCharacteristicsofAccountingInformation,expandonthecost/benefit
considerationsdiscussedinthisparagraph.TheBoardintendstosolicitviewsregardingitstentativeconclusionthatthequalitiesofinformationsetforthinConceptsStatement2alsoapplytoaccountinginformationofnonbusinessorganizations.15Taxpayersprovideresourcestononbusinessorganizationsbothdirectlyandindirectly.Theypaytaxestoalllevelsofgovernment.Govern-ments(especiallyfederalandstate),inturn,providefundingtootherlevelsofgovernment,government-sponsoredentities,andprivatenonbusi-nessorganizations.
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goods,orservicestheysupply.Theirintereststemsfromconcernabouttheorganization’sabilitytogen-eratecashflowsfortimelypaymentoftheorganiza-tion’sobligationstothem.Governingandoversightbodiesalsouseinformationaboutservicesrenderedtohelpthemevaluatewhethermanagershavecarriedouttheirpolicymandatesandtochangeorformulatenewpoliciesfortheorganization.Thatinformationalsoisimportanttomanagersinevaluatingtheac-complishmentoftheresponsibilitiesforwhichtheyareaccountabletogoverningbodies,resourcepro-viders,andotherconstituents.Constituents,includ-ingrecipientsandbeneficiariesofserviceswhoasagrouparedistinctfromresourceproviders,shareadi-rectinterestinsimilarinformation.
31.Someusershavespecializedneedsbutalsohavethepowertoobtaintheinformationtheyneed.Forexample,donorsandgrantorswhorestricttheuseofresourcestheyprovideoftenstipulatethattheybeap-prisedperiodicallyoftheorganization’scompliancewiththetermsandconditionsofthegiftorgrant.Creditorsalsomaybeabletostipulatethatcertainspecializedtypesofinformationbeprovided.Special-purposereportsdirectedatthosekindsofneedsarebeyondthescopeofthisStatement.32.Managersand,tosomeextent,governingbodiescommonlyaredescribedas“internalusers.”Inaddi-tiontotheinformationprovidedbyfinancialreport-ing,theyneedagreatdealofinternalaccountingin-formationtocarryouttheirresponsibilitiesinplanningandcontrollingactivities.Muchofthatin-formationrelatestoparticulardecisionsortomanag-ers’exerciseoftheirstewardshipresponsibilitytoen-surethatresourcesareusedfortheirintendedpurposes.Forexample,governingbodiesandman-agersneedinformationtoevaluateproperlythecom-petingrequestsforfundingofcapitalprojects.Theyalsoneedinformationtoassistthemincomplyingoroverseeingcompliancewithspendingmandateses-tablishedbybudgetaryappropriationsordonororgrantorrestrictions.Theyneedtoknowhowmuchofabudgetaryappropriationorrestrictedgrantisun-spentoruncommitted.Theyneedtoknowthatre-strictedresourceswereexpendedorcommittedincompliancewithrelatedmandates.Generally,boththenumberofspendingmandatesandthedetailaboutthemrequiredtomeettheinformationalneedsofmanagersaresogreatthattheusefulnessofgen-eralpurposeexternalfinancialreportswouldbere-ducedsignificantlyiftheyreportedthestatusofcom-pliancewitheachmandate(paragraph41).Sincethetypeofreportingdescribedinthisparagraphneedsto
betailoredtomeetthespecializedneedsofmanagersandgoverningbodiesofparticularorganizations,itisbeyondthescopeofthisStatement.
OBJECTIVESOFFINANCIALREPORTING33.Thefollowingobjectivesoffinancialreportingflowfromtheprecedingparagraphsandproceedfromthegeneraltothespecific.Theobjectivesbeginwithabroadfocusoninformationthatisusefultore-sourceprovidersandotherusersinmakingrationaldecisionsaboutallocatingresourcestononbusinessorganizations.Thefocusisthennarrowedtotheneedsofresourceprovidersandotherusersforinfor-mationabouttheservicesanorganizationprovidesanditsabilitytocontinuetoprovidethoseservices.Thatdirectstheirattentiontoinformationabouttheorganization’sperformanceandhowitsmanagershavedischargedtheirstewardshipresponsibility.Fi-nally,theobjectivesfocusonthetypesofinformationfinancialreportingcanprovidetomeetthoseneeds.Thereasonsforfocusingtheobjectivesoffinancialreportingondecisionsgenerallymadebyresourceprovidersaregiveninparagraph36.Thatfocusandwordingdonotmeanthattheobjectivesapplytoonlyresourceproviders.Onthecontrary,informationthatsatisfiestheobjectivesshouldbeusefultoallwhoareinterestedinanonbusinessorganization’spresentandfuturecapacitytorenderserviceandachieveitsoperatinggoals.
34.Theobjectivesarethoseoffinancialreportingratherthangoalsforresourceprovidersorotherswhousetheinformationorfortheeconomyorsocietyasawhole.Theroleoffinancialreportingintheeconomyandsocietyistoprovideinformationthatisusefulinmakingdecisionsaboutallocatingscarcere-sources,nottodeterminewhatthosedecisionsshouldbe.Forexample,informationthattriestoindi-catethatarelativelyinefficientuserofresourcesisef-ficientorinformationthatisdirectedtowardapar-ticulargoal,suchasencouragingthereallocationofresourcesinfavorofcertainprogramsoractivitiesofnonbusinessorganizations,islikelytofailtoservethebroaderobjectivesthatfinancialreportingisin-tendedtoserve.Theroleoffinancialreportingre-quiresittoprovideneutralinformation.InformationUsefulinMakingResourceAllocationDecisions
35.Financialreportingbynonbusinessorganiza-tionsshouldprovideinformationthatisusefultopresentandpotentialresourceprovidersandotherus-ersinmakingrationaldecisionsabouttheallocation
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ofresourcestothoseorganizations.Theinformationshouldbecomprehensibletothosewhohavearea-sonableunderstandingofanorganization’sactivitiesandarewillingtostudytheinformationwithreason-ablediligence.
36.Resourceprovidersareimportantusersofinfor-mationprovidedbyfinancialreportingwhogenerallycannotprescribetheinformationtheywant.Theirde-cisionssignificantlyaffectbothnonbusinessorgani-zationsandtheallocationofresourcesinsocietygen-erally.Inaddition,informationprovidedtomeettheneedsofpresentandpotentialresourceprovidersislikelytobeusefultootherswhoareinterestedines-sentiallythesameaspectsofnonbusinessorganiza-tionsasresourceproviders.
37.Thepotentialuserslistedinparagraph29under-stand,tovaryingdegrees,theenvironmentwithinwhichanonbusinessorganizationoperates,thena-tureofitsactivities,andrelatedmatters.Theirunder-standingofinformationprovidedbyfinancialreport-ingandtheextenttowhichtheyuseandrelyonitalsovariesgreatly.Financialreportinginformationisatooland,likemosttools,cannotbeofmuchdirecthelptothosewhoareunableorunwillingtouseitorwhomisuseit.Itsusecanbelearned,however,andfinancialreportingshouldprovideinformationthatcanbeusedbyallwhoarewillingtolearntouseitproperly.Effortsmaybeneededtoincreasetheun-derstandabilityofinformationprovidedbyfinancialreporting.Cost/benefitconsiderationsmayindicatethatinformationunderstoodorusedbyonlyafewshouldnotbeprovided.16Conversely,financialre-portingshouldnotexcluderelevantinformationmerelybecauseitisdifficultforsometounderstandorbecausesomechoosenottouseit.
InformationUsefulinAssessingServicesandAbilitytoProvideServices
38.Financialreportingshouldprovideinformationtohelppresentandpotentialresourceprovidersandotherusersinassessingtheservices17thatanonbusi-nessorganizationprovidesanditsabilitytocontinuetoprovidethoseservices.18Theyareinterestedinthatinformationbecausetheservicesaretheendforwhichtheresourcesareprovided.Therelationofthe
1617servicesprovidedtotheresourcesusedtoprovidethemhelpsresourceprovidersandothersassesstheextenttowhichtheorganizationissuccessfulincar-ryingoutitsserviceobjectives.
39.Resourcesarethelifebloodofanorganizationinthesensethatitusesresourcestoprovideservices.Anonbusinessorganizationcannot,inthelongrun,continuetoachieveitsoperatingobjectivesunlesstheresourcesmadeavailabletoitatleastequalthere-sourcesneededtoprovideservicesatlevelssatisfac-torytoresourceprovidersandotherconstituents.Al-thoughdecisionsofpotentialandpresentresourceproviderstoprovideorcontinuetoprovideresourcesinvolveexpectationsaboutfutureservicesofanor-ganization,thoseexpectationscommonlyarebasedatleastpartlyonevaluationsofpastperformance.Thus,resourceproviderstendtodirecttheirinteresttoinformationabouttheorganization’sresourcesandhowitacquiresandusesresources.Thefocusofthatinterestisinformationabouttheorganization’sper-formanceandhowitsmanagershavedischargedtheirstewardshipresponsibilityduringaperiod.InformationUsefulinAssessingManagementStewardshipandPerformance
40.Financialreportingshouldprovideinformationthatisusefultopresentandpotentialresourceprovid-ersandotherusersinassessinghowmanagersofanonbusinessorganizationhavedischargedtheirstew-ardshipresponsibilitiesandaboutotheraspectsoftheirperformance.Managersofanorganizationareaccountabletoresourceprovidersandothers,notonlyforthecustodyandsafekeepingoforganizationresources,butalsofortheirefficientandeffectiveuse.Thosewhoprovideresourcestononbusinessor-ganizationsdonothaveaprofitindicatortoguidetheirresourceallocationdecisionsandmaynothaveanimmediatechoiceabouttheamountsoftheircon-tributions.Theymustlooktomanagerstorepresenttheirinterestsandtomakeoperatingcost/benefitjudgmentsthatachievetheobjectivesoftheorgani-zationswithminimumuseofresources.Managersalsoareaccountableforcompliancewithstatutory,contractual,orotherlimitations.
Seefootnote14.
Thetermservicesinthiscontextencompassesthegoodsaswellastheservicesanonbusinessorganizationmayprovide.18Anorganization’sabilitytocontinuetoprovideservicesultimatelydependsonitsabilitytoobtainresourcesfromresourceproviders.Theabilitytoobtainsufficientresourcesnormallyisnotdiscussedingeneralpurposeexternalfinancialreportsunlessthatabilityisindoubt.Para-graphs43–55discussthetypeofinformationfinancialreportingcanprovidetomeettheobjectiveinparagraph38.
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41.Informationaboutanorganization’sperform-ance(paragraphs47–53)shouldbethefocusforas-sessingthestewardshiporaccountabilityofmanag-ersofanonbusinessorganization.Usersalsoneedassurancethatmanagershaveexercisedtheirspecialresponsibilitiestoensurethatanorganizationusesre-sourcesinthemannerspecificallydesignatedbyre-sourceproviders.Generalpurposeexternalfinancialreportingcanbestmeetthatneedbydisclosingfail-urestocomplywithspendingmandatesthatmayim-pingeonanorganization’sfinancialperformanceoronitsabilitytocontinuetoprovideasatisfactorylevelofservices.
42.Financialreportingislimitedinitsabilitytodis-tinguishtheperformanceofmanagersfromthatoftheorganizationitself.Nonbusinessorganizationsareoftenhighlycomplexinstitutions,andtheprocessesbywhichtheyacquireresourcesandrenderservicesoftenarelongandintricate.Organizationalsuccessesandfailuresaretheresultofnumerousfactors.Theabilityandperformanceofmanagersarecontributingfactors,asareeventsandcircumstancesthatoftenarebeyondthecontrolofmanagers.Itisusuallynotpos-sibletodeterminethedegreetowhichmanagers,oranyotherspecificfactors,haveaffectedtheresult.Actionsofpastmanagersaffectcurrentperiods’per-formance,andactionsofpresentmanagersaffectfu-tureperiods’performance.
InformationaboutEconomicResources,Obligations,NetResources,andChangesinThem
43.Financialreportingshouldprovideinformationabouttheeconomicresources,obligations,andnetresourcesofanorganizationandtheeffectsoftrans-actions,events,andcircumstancesthatchangere-sourcesandinterestsinthoseresources.19Thattypeofinformationisusefulinachievingeachoftheaboveobjectives.
EconomicResources,Obligations,andNetResources
44.Financialreportingshouldprovideinformationaboutanorganization’seconomicresources,obliga-tions,andnetresources.Thatinformationhelpsre-19sourceprovidersandothersidentifytheorganiza-tion’sfinancialstrengthsandweaknesses,evaluateinformationabouttheorganization’sperformanceduringaperiod(paragraphs47–53),andassessitsabilitytocontinuetorenderservices.
45.Informationaboutanorganization’seconomicresources,obligations,andnetresourcesalsopro-videsdirectindicationsofthecashflowpotentialofsomeresourcesandofthecashneededtosatisfymany,ifnotmost,obligations.Theassessmentofcashflowpotentialisimportantbecauseitrelatesdi-rectlytotheorganization’sabilitytoprovidethegoodsandservicesforwhichitexists.
46.Resourcesprovidedtononbusinessorganiza-tionsoftenarerestrictedbyprovidersastotimeandforparticularpurposes(paragraph21).Accordingly,informationaboutrestrictionsontheuseofresourcesisimportantforassessingthetypesandlevelsofservicesanorganizationisabletoprovide.Thatin-formationisalsoimportanttocreditorsinassessingtheirprospectsforreceivingcash.20OrganizationPerformance
47.Financialreportingshouldprovideinformationabouttheperformanceofanorganizationduringaperiod.Periodicmeasurementofthechangesintheamountandnatureofthenetresourcesofanonbusi-nessorganizationandinformationabouttheserviceeffortsandaccomplishmentsofanorganizationto-getherrepresenttheinformationmostusefulinas-sessingitsperformance.
Natureofandrelationbetweeninflowsandoutflows
48.Financialreportingshouldprovideinformationabouttheamountsandkindsofinflowsandoutflowsofresourcesduringaperiod.Itshoulddistinguishre-sourceflowsthatchangenetresources,suchasin-flowsoffeesorcontributionsandoutflowsforwagesandsalaries,fromthosethatdonotchangenetre-sources,suchasborrowingsorpurchasesofbuild-ings.Italsoshouldidentifyinflowsandoutflowsofrestrictedresources.
InFASBConceptsStatementNo.3,ElementsofFinancialStatementsofBusinessEnterprises,theBoardhasattemptedtodefinemanyele-ments(forexample,assetsandliabilities)inawaythattheycouldapplytoalltypesofentities.Inthenearfuture,theBoardexpectstoconsiderandsolicitviewsaboutwhich,ifany,ofthedefinitionsareinappropriateormayrequiremodificationfornon-businessorganizationsandwhetherotherelementsareneededforfinancialstatementsofnonbusinessorganizations.20Issuesthataffecthow,ifatall,restrictedresourcesaredisplayedinfinancialstatements,forexample,byusingmulti-columnpresentationsordisclosureinthenotes,areoutsidethescopeofthisStatementandmaybethesubjectoffutureBoardprojects.
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FASBStatementofConcepts
49.Financialreportingshouldprovideinformationabouttherelationbetweeninflowsandoutflowsofresourcesduringaperiod.Thosewhoprovidere-sourcestoanonbusinessorganizationandotherswanttoknowhowandwhynetresourceschangedduringaperiod.Tomeetthatneed,financialreport-ingmustdistinguishbetweenresourceflowsthatarerelatedtooperationsandthosethatarenot.21Inthisway,financialreportingmayprovideinformationthatisusefulinassessingwhethertheactivitiesofanonbusinessorganizationduringaparticularperiodhavedrawnupon,orhavecontributedto,pastorfu-tureperiods.Thus,itshouldshowtherelationofre-sourcesusedinoperationsofaperiodtoresourcein-flowsavailabletofinancethoseoperations.Similarly,itshouldprovideinformationaboutchangesinre-sourcesthatarenotrelatedtooperations.Forex-ample,resourceproviderstocollegesoruniversitiesneedinformationaboutchangesinanorganization’sendowmentandplanttounderstandmorefullythechangesinitsnetresourcesduringaperiod.50.Theinformationdescribedinparagraphs47–49measuredbyaccrualaccountinggenerallyprovidesabetterindicationofanorganization’sperformancethandoesinformationaboutcashreceiptsandpay-ments.22Accrualaccountingattemptstorecordthefinancialeffectsoftransactions,events,andcircum-stancesthathavecashconsequencesforanorganiza-tionintheperiodsinwhichthosetransactions,events,andcircumstancesoccurratherthaninonlytheperiodsinwhichcashisreceivedorpaidbytheorganization.Accrualaccountingisconcernedwiththeprocessbywhichcashisobtainedandused,notwithjustthebeginningandendofthatprocess.Itrec-ognizesthattheacquisitionofresourcesneededtoprovideservicesandtherenderingofservicesbyanorganizationduringaperiodoftendonotcoincidewiththecashreceiptsandpaymentsoftheperiod.23
21Serviceeffortsandaccomplishments
51.Informationaboutanorganization’sserviceef-fortsandaccomplishmentsisusefultoresourcepro-vidersandothersinassessingtheperformanceofanonbusinessorganizationandinmakingresourceal-locationdecisions,particularlybecause:
a.Theaccomplishmentsofnonbusinessorganiza-tionsgenerallycannotbemeasuredintermsofsales,profit,orreturnoninvestment.
b.Resourceprovidersoftenarenotinapositiontohavedirectknowledgeofthegoodsorservicesprovidedwhentheyalsoarenotusersorbenefi-ciariesofthosegoodsandservices.52.Financialreportingshouldprovideinformationabouttheserviceeffortsofanonbusinessorganiza-tion.Informationaboutserviceeffortsshouldfocusonhowtheorganization’sresources(inputssuchasmoney,personnel,andmaterials)areusedinprovid-ingdifferentprogramsorservices.Techniquesformeasuringthecostsofsignificantprogramsorserv-icesarewelldevelopedandthisinformationnor-mallyshouldbeincludedinfinancialstatements.53.Ideally,financialreportingalsoshouldprovideinformationabouttheserviceaccomplishmentsofanonbusinessorganization.Informationaboutserviceaccomplishmentsintermsofgoodsorservicesproduced(outputs)andofprogramresults24mayen-hancesignificantlythevalueofinformationprovidedaboutserviceefforts.However,theabilitytomeasureserviceaccomplishments,particularlyprogramre-sults,isgenerallyundeveloped.Atpresent,suchmeasuresmaynotsatisfythequalitativecharacteris-ticsofaccountinginformationidentifiedinConceptsStatement2.Researchshouldbeconductedtodeter-mineifmeasuresofserviceaccomplishmentswiththerequisitecharacteristicsofrelevance,reliability,
Resourceflowsthatarenotrelatedtooperationshavebeendescribedinvariousways,forexample,as“nonexpendable,”“capital,”or“re-stricted”flows.TheBoard’sendorsementofdistinguishingthesetypesofflowsisnotintendedtoprejudgefuturedeterminationsof(a)thecrite-riathatshouldbeusedinmakingthisdistinctionand(b)howandinwhatfinancialstatementsdifferenttypesofflowsmightbedisplayed.
22Insomerelativelysmallorganizations,thebenefitsofthebetterinformationobtainedfromaccrualaccountingmaynotjustifythecostsofobtainingthatinformation(footnote14).
23Accrualaccountingisconcernedwiththetimingofrecognizingtransactions,events,andcircumstancesthathavefinancialeffectsonanorgan-ization.Thisparagraphisnotintendedtoprejudgespecificrecognitionandmeasurementissuesinvolvedinapplyingaccrualaccountinginthenonbusinessarea.Forexample,whethercertaininflowsoffinancialresources,suchastaxes,grants,andcontributions,shouldberecognizedintheperiodwhenaclaimarises,whentheyarereceived,whentheyareappropriatedforuse,whentheyareused,orwhenothereventsoccur,isbeyondthescopeofthisStatement.24Serviceaccomplishmentsgenerallymaybeviewedastheresultsofserviceefforts.TheFASBResearchReport,ReportingofServiceEffortsandAccomplishments,distinguishestwopossiblemeasuresofaccomplishments,outputsandresults.“Outputsusuallyareobservabledirectlyasaresultofservicedelivery;theydescribegoodsandservicesprovidedbyservicedeliverybutdonotmeasureimpactuponclientsorproblems....Results...representimpactuponclientsorproblemsituations”(page7).Indiscussingthislattermeasure,thisStatementusesthetermprogramresults.
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ObjectivesofFinancialReportingby
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comparability,verifiability,andneutralitycanbede-veloped.Ifsuchmeasuresaredeveloped,theyshouldbeincludedinfinancialreports.Intheabsenceofmeasuressuitableforfinancialreporting,informationaboutserviceaccomplishmentsmaybefurnishedbymanagers’explanationsandsourcesotherthanfinan-cialreporting.Liquidity
54.Financialreportingshouldprovideinformationabouthowanorganizationobtainsandspendscashorotherliquidresources,aboutitsborrowingandre-paymentofborrowing,andaboutotherfactorsthatmayaffectitsliquidity.Informationaboutthosere-sourceflowsmaybeusefulinunderstandingtheop-erationsofanenterprise,evaluatingitsfinancingac-tivities,assessingitsliquidity,orinterpretingperformanceinformationprovided.Informationaboutperformanceandeconomicresources,obliga-tions,andnetresourcesalsomaybeusefulinassess-inganenterprise’sliquidity.
Managers’ExplanationsandInterpretations55.Financialreportingshouldincludeexplanationsandinterpretationstohelpusersunderstandfinancialinformationprovided.Forexample,theusefulnessoffinancialinformationtoresourceprovidersandoth-ersmaybeenhancedbymanagers’explanationsoftheinformation.Sincemanagersusuallyknowmoreabouttheorganizationanditsaffairsthandoresourceprovidersorothersoutsidetheorganization,theyof-tencanincreasetheusefulnessofinformationpro-videdbyfinancialreportingbyidentifyingcertaintransactions,events,andcircumstancesthataffecttheorganizationandbyexplainingtheirfinancialim-
pact.25Inaddition,dividingcontinuousoperationsintoaccountingperiodsisaconventionandmayhavearbitraryeffects.Managerscanenhancetheuse-fulnessofinformationcontainedinfinancialreportsbyidentifyingarbitraryresultscausedbyallocationsbetweenperiodsandbydescribingtheeffectsofthoseallocationsonreportedinformation.Moreover,financialreportingoftenprovidesinformationthatdependson,orisaffectedby,managers’estimatesandjudgments.Usersareaidedinevaluatingesti-matesandjudgmentsbyexplanationsofunderlyingassumptionsandmethodsused,includingdisclosureofsignificantuncertaintiesaboutprincipalunderly-ingassumptionsorestimates.
THENONBUSINESSOBJECTIVESPROJECT—APERSPECTIVE
56.Paragraphs43–54focusoninformationthatas-sistsresourceprovidersandotherusersinassessinganorganization’sfinancialviability,itsperformance,andhowtheorganization’smanagershavedis-chargedtheirstewardshipresponsibilities.Thoseparagraphsemphasizeinformationaboutanorgani-zation’seconomicresources,obligations,andnetre-sourcesanditsperformanceduringaperiod.Theob-jectivesleadto,butleaveunanswered,questionssuchastheidentity,number,andformoffinancialstatements;elementsoffinancialstatementsandtheirrecognition,measurement,anddisplay;andcriteriafordeterminingthereportingentity.TheBoard’sap-proachtoresolvingthosequestionswillbetointe-grateconsiderationofnonbusinessorganizationsintoitsseriesofconceptualframeworkprojects.Thatin-tegrationmayinvolveinitiatingnewprojectstodealwithissuesthatmaybemoreprevalentinoruniquetononbusinessorganizations.
ThisStatementwasadoptedbytheunanimousvoteofthesevenmembersoftheFinancialAccountingStandardsBoard:
DonaldJ.Kirk,ChairmanFrankE.Block
JohnW.MarchRobertA.MorganDavidMosso
RobertT.SprouseRalphE.Walters
25Thesediscussionsmayincludeinformationaboutserviceeffortsandaccomplishmentsasdescribedinparagraphs51–53.
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FASBStatementofConcepts
AppendixA
BACKGROUNDINFORMATION
BriefHistoryofFASBNonbusinessObjectivesProject
57.TheBoard’sprojectonobjectivesoffinancialre-portingbynonbusinessorganizationsisrelatedtoandpartofitsefforttodevelopaconceptualframe-workforfinancialreporting.TheBoardbeganitsworkonaconceptualframeworkin1973andusedasapointofdeparturetheReportoftheStudyGroupontheObjectivesofFinancialStatements,ObjectivesofFinancialStatements(TruebloodReport),publishedbytheAmericanInstituteofCertifiedPublicAccoun-tantsinOctober1973.Thatreportincludedgovern-mentalandnot-for-profitorganizationsinitsscope.58.Asmorefullydiscussedinparagraphs57–62ofConceptsStatement1,theBoardinitiallyconsideredthe12objectivesoffinancialstatementsintheTrue-bloodReportbutdecidedtoconcentrateitsinitialef-fortsonformulatingobjectivesoffinancialreportingbybusinessenterprises.Initially,therefore,theBoarddidnotattempttoreachconclusionsontheobjectivesoffinancialreportingforgovernmentalandnot-for-profitorganizations.
59.Theneedtoconsidertheobjectivesofgeneralpurposeexternalfinancialreportingbynonbusinessorganizationsgenerallyisrecognized.Anincreasingnumberofpublicofficialsandprivatecitizensarequestioningtherelevanceandreliabilityoffinancialaccountingandreportingbynonbusinessorganiza-tions.Thatconcernhasbeenreflectedinlegislativeinitiativesandwell-publicizedallegationsofseriousdeficienciesinthefinancialreportingofvarioustypesofnonbusinessorganizations.
60.Inresponsetothoseconcerns,theBoard,inAu-gust1977,engagedProfessorRobertN.AnthonyoftheHarvardBusinessSchooltopreparearesearchre-portaimedatidentifyingtheobjectivesoffinancialreportingbyorganizationsotherthanbusinessenter-prises.A53-memberadvisorygroupwasappointedtoassistinthateffort.WhentheBoardbeganconsid-erationofobjectivesoffinancialreportingbynon-businessorganizationsinAugust1977,significantprogressalreadyhadbeenmadeontheobjectivesoffinancialreportingbybusinessenterprises.Ratherthandelayprogressonthatprojecttoincludenon-businessorganizationsinitsscope,andtoexplore
thoroughlytheissuesinthenonbusinessarea,theBoardproceededwithtwoseparateobjectivesprojects.TheBoardissuedConceptsStatement1inNovember1978.Paragraph1ofConceptsState-ment1states:
ThisStatementestablishestheobjectivesofgeneralpurposeexternalfinancialreport-ingbybusinessenterprises.Itsconcentrationonbusinessenterprisesisnotintendedtoim-plythattheBoardhasconcludedthattheusesandobjectivesoffinancialreportingbyotherkindsofentitiesare,orshouldbe,thesameasordifferentfromthoseofbusinessenter-prises.Thoseandrelatedmatters,includingwhetherand,ifso,howbusinessenterprisesandotherorganizationsshouldbedistin-guishedforthepurposeofestablishingobjec-tivesofandbasicconceptsunderlyingfinan-cialreporting,areissuesinanotherphaseoftheBoard’sconceptualframeworkproject.61.InMay1978,theBoardpublishedtheFASBRe-searchReport,FinancialAccountinginNonbusinessOrganizations,preparedbyProfessorAnthony.TheBoardaddedthenonbusinessobjectivesprojecttoitstechnicalagendaonMay11,1978anddirectedthestafftoprepareaDiscussionMemorandumtosolicitpubliccomment.TheDiscussionMemorandumwasissuedonJune15,1978.ItfocusedonspecificissuesdiscussedintheResearchReportandidentifiedthoseonwhichtheBoardsoughtcomments.
62.TheBoardheldpublichearingsinWashington,D.C.onOctober12and13,1978;inSanFranciscoonOctober19and20,1978;andinChicagoonNo-vember3,1978.TheBoardreceived87writtenre-sponsestotheDiscussionMemorandum,and48oralpresentationsweremadeatthepublichearings.63.TheBoardissuedanExposureDraft,ObjectivesofFinancialReportingbyNonbusinessOrganiza-tions,onMarch14,1980.InpreparingtheExposureDraft,theBoarddeliberatedtheissuesatmeetingswhichwereopentopublicobservation.FASBBoardandstaffmembershavemetwithandmaintainedcloseliaisonwithvariousgroupsandindividualsinthecommunityofnonbusinessorganizationssincetheoutsetofthisproject.Inaddition,personsfromacademe,publicaccounting,andvariousnonbusi-nessorganizationsprovidedcounseltotheBoardanditsstaffinpreparingtheExposureDraft.TheBoardreceived77lettersofcommentontheExposureDraftandconsideredtheissuesraisedbyrespondentsinthosecommentlettersatmeetingswhichwereopentopublicobservation.
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64.ThemajordifferencesbetweenthisState-mentandtheExposureDraftarerevisionstothescopeofthedocument.Thetypesoforganizationstowhichtheobjectivesinthisdocumentapplyhavebeenclarified(paragraph1oftheExposureDraft),andadiscussionhasbeenaddedconcerningtherela-tionshipofthisStatementtoConceptsStatement1.Othersignificantchangesare(a)theadditionofex-amplesofvarioustypesofnonbusinessorganizationsintheenvironmentsection(paragraphs13–22);(b)greateremphasisondistinguishingflowsthataf-fectoperationsfromthosethatdonot(paragraph49);(c)greateremphasisontheneedforresearchtodeter-mineifmeasuresofserviceaccomplishmentswiththerequisitecharacteristicsofrelevance,reliability,comparability,verifiability,andneutralitycanbede-veloped;and(d)acknowledgementthat,intheab-senceofthatfinancialreportingcapability,informa-tionaboutserviceaccomplishmentsmaybefurnishedbymanagers’explanationsandsourcesotherthanfinancialreporting.StateandLocalGovernmentalUnits
65.Othershavebeenstudyingtheobjectivesoffi-nancialreportingbygovernmentalunitsduringtheperiodthattheBoardhasbeendeliberatingtheissuesandpreparingthisconceptsStatement.TheNationalCouncilonGovernmentalAccountingissponsoringresearchinthebroadareaofaconceptualframeworkforgovernmentalaccounting,whichincludestheob-jectivesofexternalfinancialreportingbystateandlocalgovernmentalunits.AstateaccountingprojectthatwascommissionedbytheCouncilofStateGov-ernmentsincludesastudyofobjectivesofaccountingandfinancialreportingbystategovernments.TheU.S.GeneralAccountingOfficeisdevelopingastatementoftheobjectivesoffinancialreportingbythefederalgovernmentanditsagencies.
66.SincethepublicationoftheExposureDraftofthisconceptsStatement,theBoardanditsstaffhavemonitoreddevelopmentsonthethreeprojectsdis-cussedabove.Thismonitoringhasconsistedofre-viewingandanalyzingworkingdraftsofcertainma-terialsmadeavailabletotheFASBbytheNCGAandotherresearchers.Onthebasisofitsstudytodate,theBoardisawareofnopersuasiveevidencethattheob-jectivesinthisStatementareinappropriateforgen-eralpurposeexternalfinancialreportsofgovernmen-talunits.AppendixB
COMPARISONOFOBJECTIVESINTHISSTATEMENTTOTHOSEINCONCEPTSSTATEMENT1
67.ThisStatementfollowsthestructureofConceptsStatement1.Bothsetsofobjectivesarebasedonthefundamentalnotionthatfinancialaccountingandre-portingconceptsandstandardsshouldbebasedontheirdecisionusefulness.Thus,theobjectivesinthisStatementandinConceptsStatement1focuson:a.Typesofusersoftheinformationprovidedbyfi-nancialreportingandthetypesofdecisionstheymake
b.Thebroadinterestsoftheusersidentifiedandtheinformationtheyneedtoassisttheminmakingdecisions
c.Thetypeofinformationfinancialreportingcanprovidetohelpsatisfytheirinformationalneeds.ThechartonthefollowingthreepagescomparesthesimilaritiesanddifferencesofthisStatementandConceptsStatement1ineachofthoseareas.
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PurposeofObjectivesa.Financialreportingshouldprovideinformationthatisuse-fultopresentandpotentialin-vestorsandcreditorsandotherusersinmakingrationalinvest-ment,credit,andsimilardeci-sions(paragraph34).a(1)Investorsandcreditorsaremajorresourceproviderstobusinessenterprises.Thus,resourceproviders,asatypeofuser,includeinvestorsandcreditorsaswellastheothergroupsidentifiedinConceptsStatement4.a(2)BothStatementsfocusonprovidinginformationusefulindecidingwhethertoprovideresourcestoanentity.Thereasonsforprovidingtheresources,ineachcase,arequitedifferent.Investorsandcreditorsofbusinessenterprisesseekmonetaryrepaymentofandareturnonresourcestheypro-vide.Nonbusinessorganizations,incontrast,obtainsignifi-cantresourcesfromresourceproviderswhoeitherexpectnoeconomicbenefitsorexpectbenefitsthatarenotproportion-atetotheresourcesprovided.b(1)Thesetwoobjectivesreflectthedifferentinterestsoftherespectiveresourceproviders.Thosedifferentinterestsleadtotheothermajorareaofdifferenceintheobjectives:thetypesofinformationfinancialreportingshouldprovideaboutperformance.NonbusinessOrganizationsConceptsStatement4ComparisonofObjectivesBusinessEnterprisesConceptsStatement1a.Identifies(1)thetypesofusersthatfinancialreport-ingshouldfocusoninpro-vidinginformationand(2)thetypesofdecisionsthoseusersmake.a.Financialreportingbynon-businessorganizationsshouldprovideinformationthatisuse-fultopresentandpotentialre-sourceprovidersandotherusersinmakingrationaldecisionsabouttheallocationofresourcestothoseorganizations(para-graph35).FASBStatementofConcepts
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b(1)Financialreportingshouldprovideinformationtohelppresentandpotentialinvestorsandcreditorsandotherusesinassessingtheamounts,timing,anduncertaintyofprospectivecashreceiptsfromdividendsorinterestandtheproceedsfromthesale,redemption,ormatu-rityofsecuritiesorloans(para-graph37).b(2)Financialreportingshouldprovideinformationabouthowmanagementofanenterprisehasdischargeditsstewardshipresponsibilitytoowners(stock-holders)fortheuseofenterpriseresourcesentrustedtoit(para-graph50).b.Identifiesthebroadinter-estsoftheusersidentifiedandtheinformationtheyneedtoassisttheminmak-ingthetypeofdecisionsde-scribedabove.b(1)Financialreportingshouldprovideinformationtohelppresentandpotentialresourceprovidersandotherusersinassessingtheservicesthatanonbusinessorganizationprovidesanditsabilitytocon-tinuetoprovidethoseservices(paragraph38).b(2)Financialreportingshouldprovideinformationthatisuse-fultopresentandpotentialre-sourceprovidersandotherusersinassessinghowmanagersofanonbusinessorganizationhavedischargedtheirstewardshipre-sponsibilitiesandaboutotheraspectsoftheirperformance(paragraph40).b(2)ThesubstanceofthesetwoobjectivesissimilarbuttheirplacementwithinthetwoStatementsisdifferent.InthisconceptsStatement,theobjectiveisviewedasabasicinfor-mationneedofusers.InConceptsStatement1,itwasviewedasinformationfinancialreportingcouldprovidetosatisfyotherbasicinformationneeds.Thatdifferenceinplacementarisesfromtheimportanceofstewardshipinfor-mationintheenvironmentofnonbusinessorganizations.Itismoreimportantbecausetheorganizationoftenisnotself-sustaining(notprofitoriented)andisdependentuponthecontinuingsupportofitsresourceproviders.Consequently,thereoftenisamoredirectrelationshipbetweenresourceprovidersandtheentitythanforabusinessenterprise.c.Identifiesthetypeofin-formationfinancialreport-ingcanprovidetohelpsat-isfyusers’informationalneeds.c.Financialreportingshouldprovideinformationabouttheeconomicresources,obliga-tions,andnetresourcesofanor-ganizationandtheeffectsoftransactions,events,andcir-cumstancesthatchangere-sourcesandinterestsinthosere-sources(paragraph43).c.Financialreportingshouldprovideinformationabouttheeconomicresourcesofanenter-prise,theclaimstothosere-sources(obligationsoftheen-terprisetotransferresourcestootherentitiesandowners’eq-uity),andtheeffectsoftransac-tions,events,andcircumstancesthatchangeresourcesandclaimstothoseresources(para-graph40).(1)Financialreportingshouldprovideinformationaboutanenterprise’seconomicre-sources,obligations,andown-ers’equity(paragraph41).(2)Financialreportingshouldprovideinformationaboutanenterprise’sfinancialperform-anceduringaperiod.Thepri-maryfocusoffinancialreport-ingisinformationaboutanenterprise’sperformancepro-videdbymeasuresofearningsanditscomponents(para-graphs42and43).(1)Exceptfordifferencesinterminology,theseobjectivesarethesame.c.Theobjectivesaresimilarexceptfordifferencesintermi-nologythatreflectoneofthedistinguishingcharacteristicsofnonbusinessorganizations—thelackofownershipinterestsentitledtoaresidualdistributionintheeventofliquidation.(1)Financialreportingshouldprovideinformationaboutanorganization’seconomicre-sources,obligations,andnetre-sources(paragraph44).ObjectivesofFinancialReportingby
NonbusinessOrganizations
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(2)Financialreportingshouldprovideinformationabouttheperformanceofanorganizationduringaperiod.Periodicmeas-urementofthechangesintheamountandnatureofthenetre-sourcesofanonbusinessorgan-izationandinformationabouttheserviceeffortsandaccom-plishmentsofanorganizationtogetherrepresenttheinforma-tionmostusefulinassessingitsperformance(paragraph47).(2)Thegoalsofthetwoobjectivesarethesamebut,be-causeofthedistinguishingcharacteristicsofnonbusinessor-ganizations,somewhatdifferentinformationisrequiredtosatisfythosegoals.Bothseektomeasuretheeffortsandac-complishmentsoftheentitybutassessmentofperformanceinnonbusinesslacksearningsasafocalmeasure.Thiscre-atestheneedforinformationonserviceeffortsandaccom-plishments.CON4
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PurposeofObjectives(3)Financialreportingshouldprovideinformationabouthowanenterpriseobtainsandspendscash,aboutitsborrowingandrepaymentofborrowing,aboutitscapitaltransactions,includ-ingcashdividendsandotherdistributionsofenterprisere-sourcestoowners,andaboutotherfactorsthatmayaffectanenterprise’sliquidityorsol-vency(paragraph49).(4)Financialreportingshould(4)Theseobjectivesarethesame.includeexplanationsandinter-pretationstohelpusersunder-standfinancialinformationpro-vided(paragraph54).(3)Exceptfordifferencesinterminologyandcircumstancesthatreflectthelackofownershipinterestsentitledtoreceivecashdividendsandotherdistributionsofentityresourcesinnonbusinessorganizations,theseobjectivesarethesame.NonbusinessOrganizationsConceptsStatement4ComparisonofObjectivesBusinessEnterprisesConceptsStatement1(3)Financialreportingshouldprovideinformationabouthowanorganizationobtainsandspendscashorotherliquidre-sources,aboutitsborrowingandrepaymentofborrowing,andaboutotherfactorsthatmayaffectitsliquidity(para-graph54).FASBStatementofConcepts
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(4)Financialreportingshouldincludeexplanationsandinter-pretationstohelpusersunder-standfinancialinformationpro-vided(paragraph55).
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