Statement of Accounting Standards No. 116

No. Don’t get turned off by the title of this rant. I want to tell you how accounting rules force organizations to do something stupid. Note: all statements herein are my opinions. I have no one but myself to blame for them.

Here’s the deal: let’s say a non-profit organization gets a grant from a state agency or a private foundation. Let’s also say it’s for $10,000, but the grantor tells you in its grant letter that you will get $10,000 this year and another $10,000 next year if you do what you said you would in your grant. Got it so far?

Well, here’s the crazy part. You have to show $20,000 as revenue this year and zero (for that grant) next year. That’s the rule. So, everything else being equal, you have an unfair upward jump in income this year and an unfair downward fall next year. Think of it as $20,000, $0, $20,000, $0 if this keeps going.

Tell me how anyone reading the organization’s financial statements would understand these upward and downward gyrations which are caused solely by how the organization is required to record stuff by the Financial Accounting Standards Board. It has nothing to do with cash, which, I think, is the most important thing so see. 

Lemme see. How about a note that says:

“Please disregard our $10,000 deficit next year. We’re fine. We just had to do it this way due to stupid accounting rules so our organization could be audited. Makes no logical sense, but, hey, that’s financial accounting anyway.”