Even though the generally accepted accounting principles (GAAP) framework is formally and officially recognized by the accounting profession, use of the GAAP framework for external financial reporting is not generally a requirement of the law outside the context of regulated and publicly traded companies. However, the use of GAAP for external financial reporting purposes may be required as a contractual or legal condition for churches and other nonprofit organizations in certain circumstances. For example, a bank or other lender may require a church to apply the GAAP framework to financial statements submitted to the lender on an annual basis. Similarly, a government agency or other grant-funding organization may require a church to submit GAAP-basis financial statements as a condition of receiving a grant. Regardless of whether such a contractual or legal condition applies, a church may still voluntarily choose to use the GAAP framework for its external financial reporting.
In the following article, CPA Michael Lee offers helpful and timely insights into the newly updated changes in GAAP.
If your church produces external financial statements following generally accepted accounting principles (GAAP), you are probably aware that the biggest change in nonprofit financial reporting in the last 20 years is upon us. Accounting Standards Update 2016-14, Presentation of Financial Statements of Not-for-Profit Entities (ASU), was issued by the Financial Accounting Standards Board (FASB) in 2016 and is effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (i.e., calendar years ending December 31, 2018, and non-calendar or fiscal years ending in 2019).