Lesson 79 - Advanced Accounting Course

Lesson 79: Ethical Considerations in Nonprofit Financial Reporting

❤️ What Is a Nonprofit Organization?

A nonprofit is an organization that exists to serve a mission — not to make profit for owners or shareholders. Examples include:

• 🏥 Hospitals
  
  

• 🎓 Universities
  
  

• 👐 Charities
  
  

• 🏛️ Foundations
  
  

Any extra money earned must be reinvested into the organization’s mission, not distributed as profit.

🤔 Why Ethics Matter in Nonprofit Accounting?

Nonprofits handle donations, grants, and public trust. Ethical reporting ensures:

• 💡 Transparency – Donors and stakeholders can see where money goes
  
  

• 🛡️ Accountability – Management is responsible for using funds properly
  
  

• 📊 Accuracy – Reports reflect true financial performance
  
  

• 👥 Trust – Essential for continued public and donor support
  
  

⚖️ Common Ethical Principles

🧾 Common Ethical Dilemmas in Reporting 

💡 Restricted vs. Unrestricted Funds 

📌 It’s unethical (and often illegal) to use restricted funds for general expenses.

🧮 Example: Ethical Presentation of Expenses

📘 Best Practices for Ethical Reporting

✅ Establish strong internal controls
✅ Have regular independent audits
✅ Provide complete and clear footnotes
✅ Avoid misleading ratios and charts
✅ Train staff in accounting ethics
✅ Maintain a whistleblower policy

📜 Example: Ethical Footnote Disclosure

"Grant funds totaling $250,000 are restricted for the expansion of our community clinic. These funds are held in a separate account and will not be used for administrative costs."

📉 Consequences of Unethical Financial Reporting

✅ Summary

• Ethics in nonprofit accounting are about trust, truth, and transparency
  
  

• Reporting must follow GAAP (ASC 958) and disclose restrictions clearly
  
  

• Always report expenses honestly and avoid manipulation
  
  

• Misuse of funds, even unintentionally, can cause serious damage
  
  

• Ethical standards protect both the organization and its mission