The impact of accounting regulation on nonprofit revenue recognition

This dissertation investigates the impact of accounting regulation on nonprofit revenue recognition. It examines the requirement that nonprofit organizations recognize unconditional promises to give as assets and revenues in the year promises are received in accordance with SFAS No. 116- Accounting For Contributions Received and Contributions Made (FASB, 1993). The study adopts the view that information about promises to give is relevant if it useful in assessing probable future cash inflows. This view is based principally on the role played by accounting accruals in predicting future cash flows, as well as a comprehensive evaluation of the rationale used by the FASB in mandating recognition treatment. A model by Dechow, Kothari and Watts (1998) is modified and developed to provide fundamental intuition about the relation between unconditional promises to give and future cash inflows. This modified model is then used to guide the study's empirical tests, which examine the assertion that recognizing unconditional promises to give as assets and as revenues in the period received improves predictions of future cash inflows. The results are consistent with this prediction.; This study makes several contributions to the literature. It develops a model that describes the relations between revenues, accruals and cash inflows, which provides further insight into the nonprofit revenue recognition process and implies that current revenues predict future cash inflows better than current cash inflows do. It offers evidence in support of the FASB's contention that unconditional promises to give are relevant, which in turn provides constructive feedback to standard setters in establishing guidelines that improve the usefulness of financial reporting for nonprofit organizations. The study affirms that many of the key conventions and elements embodied in the FASB Concepts Statements apply to nonprofits as well, which is consistent with the FASB's endorsement of an integrated conceptual framework that has relevance to all types of reporting entities.