STATEMENTS OF FINANCIAL ACCOUNTING

This research reviews and assesses two statements of financial accounting. The statements, issued by the Financial Accounting Standards Board, are numbers 124 and 125.

Statement of Financial Accounting Number 124

Statement of Financial Accounting (SFAS) Number 124 was issued in November 1995 (Financial Accounting Standards Board, 1995). The statement deals with the accounting for some investments held by non-for-profit organizations.

Specifically, SFAS No. 124 ôestablishes standards of financial accounting and reporting of certain investments in securities and establishes disclosure requirements for investments held by non-for-profit organizationsö (Financial Accounting Standards Board, 1995, p. 1). SFAS No. 124, thus, is a companion of sorts for SFAS No. 115 which provides similar guidance for such investments held by for-profit organizations.

The standards promulgated in SFAS No. 124 apply to ôinvestments in securities that have readily determinable fair values à and to all investments in debt securitiesö (Financial Accounting Standards Board, 1995, p. 1). SFAS No. 124 holds that the fair value of an equity security is ôreadily determinable if any one of the following criteria is metö (Financial Accounting Standards Board, 1995, p. 1):

1. Sales prices or bid-and-asked quotations for the security, if traded in the United States, are available from a securities ex

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ounting Standards Board, 1995, p. 6): a. For those ôdebt securities than an organization has the positive intent and ability to hold to maturity,ö the suggested alternative treatment is for the investment to be reported ôat amortized costö (Financial Accounting Standards Board, 1995, p. 6). b. For ôother debt securities and equity securities with readily determinable fair values,ö the suggested alternative is for the investment to be reported at fair value (Financial Accounting Standards Board, 1995, p. 6). 2. As opposed to the requirement in SFAS No. 124 that net gains and losses on investments with readily available fair values be recorded, a suggested alternative treatment is that the reporting amounts be limited to actual, or realized, net gains and losses (Financial Accounting Standards Board, 1995). The rationale for this suggested alternative treatment is ôusers of financial statements might be misled if the amount reported within an operating measure is greater than the actual return for the periodö (Financial Accounting Standards Board, 1995, p. 6). 3. SFAS No. 124 states that: ôIf losses reduce the assets of a donor-restricted endowment fund below the level required by the donor stipulations or law, gains that resto
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Approximate Word count = 2241
Approximate Pages = 9 (250 words per page)