Biggest Change to Nonprofit Financial Reporting in 20 Years Has Arrived

By Lee Klump

The Financial Accounting Standards Board (FASB) has just released the Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954) – Presentation of Financial Statements of Not-for-Profit Entities, which you can find here. If you’ve been following, you’ll know this marks the biggest change to nonprofit financial reporting in more than two decades.

The standard aims to improve presentation of financial information, ultimately making nonprofit financial reporting statements more informative, transparent and useful to readers.

Key qualitative and quantitative requirements covered in the final ASU include:

  • Net asset classes
  • Investment return
  • Expenses
  • Liquidity and availability of resources
  • Presentation of operating cash flows

Our take:

  • Consider Your Options & Involve Your Board: Once you’ve read and digested the information in the update, NOW is the time for discussing how these changes will impact your nonprofit. Consider speaking with your advisors about your options, and be sure to discuss the impact of the ASU with your board. As heavy users of nonprofit financial statements, boards need to be a part of the process for deciding when and how to implement the guidance.
  • Communicate & Plan for Implementation Early: In the lead-up to the ASU’s release, many organizations may have overlooked the communication and implementation challenges the new standards will yield. The upcoming revenue recognition, lease accounting and the financial reporting standard update deadlines could make for a challenging sequence of accounting changes. Nonprofits are wise to approach these changes holistically and develop an implementation schedule for all three.
  • Think of the Glass Half Full: While change is never easy, this is an opportunity for nonprofits to be catalysts for change. The ASU gives organizations more options for presenting their results and an opportunity to take their financial statements to a higher level. Instead of using financial statements solely as a vehicle to report history, organizations can use this opportunity to make their statements a better resource for communicating accomplishments and outcomes to stakeholders.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” Blog (August 18, 2016). Copyright © 2016 BDO USA, LLP. All rights reserved.


Submit a Comment

Your email address will not be published. Required fields are marked *