If you are in charge of accounting for nonprofits, it is important to keep abreast of the FASB financial reporting standards changes. These changes are the most significant in twenty-three years, and will affect organizations to a large degree.
The New FASB Nonprofit Guidelines
On August 18 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.
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Like other accounting for nonprofit tasks, these FASB changes require significant planning and preparation. Failure to begin planning now may mean that your organization is unable to meet the requirements later.
The areas most affected by the changes include:
- Net asset classification requirements
- Information provided financial statements
- Notes about liquidity, financial performance, and cash flows
The Journal of Accountancy states that nonprofits must now report expenses by their nature and function. This is a change; formerly, only nonprofit health and welfare organizations were required to follow this reporting protocol. Now all nonprofits will be required to report expenses in this manner.
In addition, a net presentation of investment expense against return is now required on the face of statement activities. Internal salaries and benefits expenses must also be disclosed as they are netted against investment returns.
Operating cash flows may be presented by either the direct or indirect method, eliminating the need for those who use the direct method to reconcile with the indirect method.
Other highlights of the changes include restructuring the net asset classifications from three to two. Nonprofits are also required to provide qualitative and quantitative information that refers to their liquidity.
The goals of these sweeping changes is to make financial disclosure more transparent for donors, investors and the general public. Many changes also reflect the changing nature of the nonprofit world.
The standard will take effect for annual financial statements issued for fiscal years beginning after Dec. 15, 2017, and for interim periods within fiscal years beginning after Dec. 15, 2018.
Help for Accounting for Nonprofits
If you struggle with your accounting for nonprofits, Beck & Company can help. We are a CPA and business advisory firm dedicated to the nonprofit sector. Our many years of experience can help you update your financial compliance, change to follow FASB 958, or handle all types of accounting for nonprofits. Please contact Beck & Company today for further details.