Nonprofit accounting choice

Accounting rules vary in terms of the discretion afforded to organizations - while some rules prescribe a specific treatment, others allow managers to choose one among many alternatives. Where there are alternatives, nonprofit managers must make choices. Managers in nonprofit organizations may use accounting choice to convey a misleadingly positive or negative image of the organization’s financial health. The scope of accounting choice includes the basis of accounting used in reporting financial information, the allocation of joint costs between program and overhead expenses, estimates and assumptions used in specific financial accounts and accruals, strategically altering actual spending decisions, accounting for business combinations, inventory valuation, and depreciation, among others. This chapter details the motivations underlying these choices, discusses the current literature on the topic including the key takeaways, and offers future directions for researchers interested in further exploring the topic of accounting choice in nonprofit organizations.