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The American Red Cross and Its Financial Reporting Research Paper


There is a number of not-for-profit organizations operating in the United States, and it is important to review their financial statements in order to get an idea of financial accounting in such organizations. The particular organization that has been chosen for the assignment is the American Red Cross that is known all over the world due to its initiatives and programs aimed at mitigating the negative consequences of natural disasters, providing blood services, and promoting health in regions where citizens’ quality of life is low.

The American Red Cross does its best in order to maintain a good reputation in the global community; therefore, the organization singles out transparency as one of the key values. When it comes to non-profit organizations, their financial statements must align with a series of rules identified in guidelines prepared by the Financial Accounting Standards Board (Financial Accounting Standards Board, 1993).

As it follows from the information presented in the document created more than twenty years ago, financial statements of the not-for-profit organizations must include information related to their liabilities, assets, and net assets. More than that, organizations are required to include the data on net assets, paying increased attention to the role of various financial operations and transactions in their formation. Also, it is obligatory to provide a full list of operations with financial resources such as outflows and inflows.

Apart from the sums of money, the type of each operation should be defined. Importantly, the document states that it is not appropriate to present inflows and outflows of financial resources separately; in addition to the general tables, it is necessary to demonstrate the relations between these two types of financial operations. In their financial reports, non-profit organizations operating on the territory of the United States are obliged to include information on liquidity and the way that a company receives and spends money in hand. Financial statements provided by non-profit organizations in the United States should include information for a particular period.

Thus, lists of activities, current financial position, and accompanying notes should be presented. Having reviewed the report of the organization, indicating financial results in 2016, it is possible to conclude that the discussed guidelines were followed.

According to the notes presenting information on investments, there is a range of funds used by the organization. When it comes to money market funds, it remains one of the fund categories that is the most widely used by ARC – the investments in these funds have significantly increased since the end of the previous financial period (The American National Red Cross, 2016). Such funds act as a good tool for organizations as they provide fixed incomes.

Another fund category used by ARC is presented by hedge funds and other types of private funds. The advantages of the use of such funds for the organization are obvious as hedge funds are expected to maximize profit-making capacity or reduce financial risks for investors. Another category used by the organization is represented by commingled funds – according to the financial data, this category remains one of the most popular. There are numerous advantages of commingled funds such as lower operating costs, and the number of strategies chosen by the organization includes arbitrage strategies and many others.

Speaking about the areas of potential interest for stakeholders of the organization, it is important to single out investments in biomedical products and services that belong to the number of the leading activities in terms of financial results and media coverage. In particular, the potential areas of interest include blood services and disaster services, as is clear from the financial results for these spheres. Stakeholders making their contribution to these activities of ARC are provided with an opportunity to improve their social reputation, use the most recent scientific research results retrieved in ARC, and take part in the development of innovative projects as well.

The statement of cash flows is presented in great detail, and the data for three types of activities (investing, operating, and financing) is included. The information for the beginning and the end of the year is presented as well. In general, there are no significant deviations from the recommended format for cash flow statements provided by GAAP. Importantly, these standards do not require companies to unite results for two reporting periods in one table to provide a comparison. In the case of ARC, its cash flow statement provides this comparison to illustrate that cash flows have increased.

Information on pledges and contributions of different types is presented in tables and comments, and particular attention is paid to information on volunteers and materials or gifts provided by them. Exchange transactions are known as one of the ways to conduct fundraising activities, and they can be used by non-profit organizations as well. Considering that the organization is charitable, financial exchange transactions (the exchange of goods and services) are not widely presented. There are more than nine categories of funds that ARC utilizes, and the data on investments is presented separately for each level of the fair value hierarchy.

Fiscal health can be defined as the ability of companies to provide high-quality services in the future without significant risks for financial stability. Total operating revenues of ARC have decreased by more than $70,000 if compared to the previous fiscal year, just like the total expenses. At the same time, the total net assets of ARC have decreased since the end of 2015. The total liabilities of ARC exceed $2,250,000.

This financial measure has increased by $350,000 since the end of the previous reporting period, whereas total net assets have decreased by more than $600,000. According to figures for fundraising, this measure has decreased by more than $10,000 recently. Program activities of ARC include more than six types of services, and expenses on biomedical services remain the most substantial as it follows from the financial information presented.

When it comes to contributions received by the American Red Cross during the reporting period, it needs to be said that the amount of financial resources contributed by both individuals and companies donating to charity has decreased – as at the end of 2015, total contributions including financial resources from independent givers, federal organizations, bequests, and the range of services and contributed materials exceeded $390,000.

In comparison, the results for the discussed reporting period are not as good because the total contributions have decreased by more than $20,000. This tendency is the most obvious when it comes to contributions received with the help of bequests and legacies, and the contributions from United Way and other large non-profit organizations have also experienced a significant decrease. In the report, revenues from grants are presented as revenues from contracts, and this measure has increased by more than $8,000. At the same time, the report does not present the detailed data on costs charged to the government related to the specific types of grants, as the authors acknowledge that this information should be audited at the governmental level.

References

Financial Accounting Standards Board. (1993). Statement of financial accounting standards no. 117. Web.

The American National Red Cross. (2016). Consolidated financial statements. Web.

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1. IvyPanda. "The American Red Cross and Its Financial Reporting." November 11, 2020. https://ivypanda.com/essays/the-american-red-cross-and-its-financial-reporting/.


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IvyPanda. 2020. "The American Red Cross and Its Financial Reporting." November 11, 2020. https://ivypanda.com/essays/the-american-red-cross-and-its-financial-reporting/.

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IvyPanda. (2020) 'The American Red Cross and Its Financial Reporting'. 11 November.

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