2006 - CPAs should encourage their not-for-profit clients
to make audited financial statements readily available, and
should encourage clients as well as members of the public
to use audited financial statements when seeking financial
information about not-for-profit organizations.
IRS Form 990 has become the basic public-disclosure document
because organizations’ forms are generally readily
available on the Internet. Form 990 has many weaknesses,
Form 990 is not audited;
Form 990 is not prepared in accordance with GAAP, most
notably, lacking notes to financial statements and using
different principles for consolidation, reporting investment
transactions, and reporting special event expenses; and
A completed Form 990 is sometimes so lengthy (over 1,000
pages) that finding relevant information is difficult
for even a knowledgeable reader.
the positive side, Form 990 does include information that
is available in the proxy statements of public companies
but not included in audited financial statements, such as
the names of officers and directors as well as compensation
Sector, a nonpartisan leadership forum for charities, foundations,
and corporate-giving programs, submitted a report to Congress
in June 2005 recommending changes to Form 990. This report
is available online at www.independentsector.org.
Although Independent Sector offers some constructive suggestions,
including a recommendation that audited GAAP financial statements
be attached to Form 990s of organizations with more than
$1 million revenue, the report has a number of weaknesses:
The Independent Sector report recommends inclusion of
only unaudited financial statements with the Form 990
of organizations with $250,000 to $1 million of revenue,
and makes no recommendations for smaller organizations
to make GAAP financial statements available to the public.
The report confuses accrual accounting with GAAP financial
The report indicates a plan to recommend changes in accounting
principles for not-for-profit organization to Congress,
rather than to FASB.
not-for-profit sector is a major part of our national economy,
and the public should be encouraged to use audited financial
statements when seeking financial information. The public
accounting profession should seek to take a leading role
in educating the public about the advantages of using audited
Toder, CPA (Retired), of New York, N.Y., is a member
of the NYSSCPA’s Not-for-Profit Organizations Committee.