OVERVIEW
Not-for-profit organizations often find that there are many advantages to using GAAP—especially those seeking to expand their capacity to provide services. Advantages of using GAAP include:
- The common GAAP framework allows for an easier comparison of financial statements across the broad, diverse, not-for-profit sector. Without GAAP, it would be difficult for external users to benchmark a not-for-profit’s performance against other organizations. The use of GAAP also facilitates comparison with the for-profit sectors where relevant, especially in the health care industry.
-
Through GAAP reporting, not-for-profits may realize greater flexibility in the types of resources available to them and in the number of donors, grantors, and lenders willing to provide resources.
- GAAP financial statements are commonly understood by lenders, donors, grantors, rating agencies, accrediting bodies, and regulators, and they are often subjected to audits or reviews by a third party.
- Through GAAP reporting, not-for-profits may realize greater flexibility in the types of resources available to them. They also may find a larger number of donors, grantors, and lenders that have confidence in the organization’s financial reporting, and may be willing to provide resources.
- Organizations may benefit from a lower cost of borrowing because lenders and other creditors have come to appreciate and rely upon the fundamental qualitative characteristics of GAAP.
- Although regulatory filings such as IRS Form 990 are required for most not-for-profits, an audit on GAAP-compliant financial statements is still desired by internal and external users.
Please refer to the
Importance of GAAP webpage for a more robust discussion of the qualities of GAAP.