GAAP requires all types of business to conduct an internal and an external audit to assess and ensure that the business is in compliance with the GAAP with its accounting and the book keeping procedures. Similarly the nonprofit business entities are also required to comply and adhere to an audit by a professional third party pertaining to an AICPA registered and GAAP qualified CPA.
The Financial Accounting Standards Board also known as the FASB is responsible for setting the GAAP specifically for the private sector which includes businesses that operate for profit as well as not for profit entities. The AICPA publishes the primary guide to GAAP for nonprofit organizations, the “Not-for-Profit Organizations Audit & Accounting Guide.” It also releases its own standards, called “Statements of Position. ‘The most recent, and controversial, is SOP 98-2, “Accounting for Joint Activities Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising.’” (Mercer, 1999) The AICPA requires the nonprofit organizations to adhere to the GAAP and provide a periodical Statement of Position as well as other publications to depict the financial standing and position of the business.
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