Your board of directors and audit committee may soon be seeing your nonprofit’s financials in a whole new light, thanks to the Accounting Standards Update (ASU) currently under deliberation by the Financial Accounting Standards Board (FASB)
The update, Presentation of Financial Statements of Not-for-Profit Entities (Topic 958), represents the first overhaul of nonprofit financial reporting since Financial Accounting Standards 117 (FAS 117) was issued in the mid-1990s. At that time, FAS 117 itself was a significant change from previous reporting guidance.
The ASU under consideration includes several provisions that would significantly change current accounting and reporting guidance for nonprofits. (See call out below)
Rethinking Nonprofit Financial Reporting
The proposed accounting changes are being characterized as a “refresh” of the fundamental reporting model for nonprofits. Yet, in reality, they represent a conceptually different approach to how information is presented in nonprofit financial statements. In fact, FASB acknowledges that the new standards are reasonably different from current Generally Accepted Accounting Principles (GAAP)—and that initial compliance with the rules could be challenging.
Yet, the end result for users of your nonprofit’s financial statements is expected to be positive. In essence, the changes are intended to provide transparency across nonprofit organizations and show donors, board members (and potential board members), lenders and regulators how the organization operates—where your money is coming from and where it is going.
Action Steps
These changes, if enacted, will undoubtedly have a very real impact on your audited financial statements—as well as how you prepare for an audit. Practically speaking, your executive director, chief financial officer, and board members will all need to understand how these changes translate into the numbers they will see. With that in mind, consider these steps for getting everyone up to speed:
Improve the Usefulness of Your Financial Statements
In a world where stakeholders, the media and the public at large are demanding increased transparency and accountability, nonprofits may ultimately be well served by this new model of financial reporting. In the end, it will provide a better opportunity for them to see—and understand—details of your organization’s liquidity, financial performance and cash flows.
Armanino’s nonprofit professionals are following these developments from FASB, and will provide additional guidance as it becomes available. Contact our office for help understanding how these reporting changes will impact your organization.
The new ASU for nonprofit entities proposes the following:
April 06, 2016