A primary characteristic that distinguishes government from not-for-profits is

Government and not for profit accounting share some similarities. For instance, both of them require a greater need for transparency because constituents and donors want to know where their money is going. Both also require a need for reduced human error. But there are differences between the two as well, and accountants need to be aware of them, should they move from one entity to the other. Here are some of the main differences between government and not-for-profit accounting practices.

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Some major differences between government and not-for-profit accounting standards

Differences in standards

Both governments and non-profits follow GAAP, the Generally Accepted Accounting Principles. But each organization also has their own standards to keep in mind as well. The government follows the Government Accounting Standard Board (GASB), and non-profits follow the Financial Accounting Standards Board (FASB). CFOs and accountants need to be aware of the differences that their respective board standards have from the GAAP.

Differences in statements

Non-profits and governments report with two common financial statements: The Statement of Activities and Statement of Cash Flows. There is also a third statement which differs for each. Government agencies use the Statement of Net Assets, and non-profits use the Statement of Financial Position.

Differences in reporting

The GAAP and the GASB culminate in the Comprehensive Annual Financial Report. The Comprehensive Annual Financial Report analyzes a government’s financial status and includes overall financial data as well as specific information as to where certain funds are allocated. The budget is the culmination of the political process. Because it is so important, the budget is a source of constituent concern and controversy, unlike the annual report.

In contrast, non-profit organizations put together financial reports for their Board of Directors and subsequent stakeholders (i.e., donors, members, funding agencies). Since they report directly to stakeholders, their reports need to be easy to read and comprehend.

Many government and not-for-profit accounting organizations have not yet established adequate accounting systems to measure non-monetary aspects of their performance. It is important to track these qualities because monetary aspects do not always cover the full picture.

Software works with both government and not-for-profit institutions to deliver responsive, organized, and efficient budgeting year after year. Our software integrates easily tracks and organizes multiple avenues of data. Since it is online, the data is easy to update from multiple personnel and smart devices. You’ll reduce human error and please your constituents at the same time. And because we specialize our software for your needs, you never need to worry about using the wrong kind of reporting standard.

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photo credit: NicoElNino

Government and nonprofit accounting are often lumped together as they both use fund accounting principles. However, the way in which they operate, organize financial information, and report on their data differ greatly.

Below are the 3 major differences between nonprofit and government accounting processes.

1. Accounting Standards

Like all accounting programs, there are certain guidelines and principles an organization and entity must follow. Both nonprofits and government agencies must follow GAAP, the Generally Accepted Accounting Principles. GAAP’s main objective is to ensure that financial information is reported on effectively and efficiently. This is done through the GAAP’s set of principles, standards, and procedures that aim to help to standardize accounting across the industry and regardless of for-profit, NPO, or government status.

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In addition to GAAP, government and nonprofit organizations have additional standards they need to follow that differ from each other:

• Government – GASB (Government Accounting Standards Board)
• Nonprofits – FASB (Financial Accounting Standards Board)

Both the FASB and GASB “develop and issue accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information.” However the GASB is intended for “taxpayers, public officials, investors, and others who use financial reports”, specifically for state and local government agencies within the United States. The GASB defines three different reporting methods for government accounting.

The FASB is intended for “investors and others who use financial reports,” essentially any public, private, or nonprofit organization or business. Unlike the GASB, the FASB defines only one method of reporting for nonprofit accounting.

2. Statements

There are 3 main financial statements that nonprofits and government entities use in their reporting. Two of them are the same: Statement of Activities and Statement of Cash Flows. The third statement, while technically a statement of the same information, is referred to differently by both entities:

• Government – Statement of Net Position
• Nonprofits – Statement of Financial Position

These statements are similar to balance sheets. They summarize the assets and liabilities, showing the net assets of the organization and assessing the financial health of the government body or organization. The statements are similar to each other because in both the nonprofit and the government, there is no owner. The main difference is that the statements represent the assets that affect different people: for the government’s statements, it affects the taxpayers; the nonprofit’s statements, it affects those who benefit from the nonprofit.

3. Reporting

Government Accounting Reports

Every year, government organizations must put together a CAFR (Comprehensive Annual Financial Report). The CAFR analyzes the financial status of the entity, and is put together using the GAAP and GASB.

The CAFR can include overall financial data as well as information on specific funds and reports the results of the period in question, often the financial year. The CAFR also includes consolidated financial statements and includes accumulations from previous years. This also includes a comparison of the period budget and the actual spend.

Nonprofit Accounting Reports

Nonprofit organizations are not required to publish CAFRs. However, they are required to put together financial reports for their Board of Directors and subsequent investors. These are called the Report of Consolidated Financial Statements which will include:

• Statement of Activities
• Statement of Financial Position
• Statement of Cash Flow

Nonprofits typically do this through their fund accounting software, as most solutions include templates that make reporting easier to read.

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