Big changes on the way for nonprofit and not-for-profit accounting? With time for comment ending on August 20, 2015, the proposed updates to the accounting standards (Topic 958) is set to substantially affect all nonprofits, as well as creditors, donors, grantors and others that use their financial statements.
In “Big Changes on the Way for Nonprofits,” Accounting Todayauthor Lee Klumpp introduced the proposed changes, a project dating back to 2009 when the FASB formed a Nonprofit Advisory Committee, which includes representatives from various types of not-for-profit organizations, including charities, arts organizations, foundations, health care organizations, religious institutions, watchdog groups, and colleges and universities.
The committee realized and recommended changes to two key issues, FAS 116 (Accounting for Contributions Received and Contributions Made) and FAS 117 (Financial Statements of Not-for-Profit Organizations), the two financial accounting standards that changed the scope of financial reporting for nonprofits back in 1993.
Summarized on a recent infographic on the BDO Nonprofit Blog, a brief overview is shown below.
Proposed changes, open for comment until August 20, are summarized in a Journal of Accountancyarticle on nonprofit and not-for-profit reporting changes, as the proposal would change net asset classification requirements, and information presented about an NFP’s liquidity, financial performance, and cash flows.
Proposed changes include the following:
- Reporting of expenses by both nature and function
- Presentation of investment expenses vs. investment return
- Requirement of NFPs to use placed-in-service approach for the treatment of expiration of restrictions related to long-term assets
- Replacement of current net assets classes (permanently restricted, temporarily restricted, and unrestricted) with two (net assets with donor restrictions and net assets without donor restrictions)
- The amount of endowment funds that are underwater would be reported within the proposed “with donor restrictions” class of net assets
- Removal of “indirect method” of reporting cash flows for operating activities.
- Reclassification of several cash flow items
- Both quantitative and qualitative information useful to assessing liquidity will be required, including a description of the time horizon used to manage a NFP’s liquidity.
- Operating measures to be defined on the basis of two key dimensions:
- A mission dimension based on whether resources are from or directed at carrying out an NFP’s purpose for existence.
- An availability dimension based on whether resources are available for current-period activities and reflecting both external limitations and internal actions of an NFP’s governing board.
For full explanation of the proposed changes, see the FASB Not for Profit Standard Summary highlighted by the Journal of Accountancy. For more information, view the O’Connor Davies newsletter on theproposed changes and what they mean to organizations.
To read the full text of proposed changes, and to provide your own commentary, click here.
Preparing Nonprofits and Not-for-Profits for Upcoming Changes
These sweeping changes will be revised, reviewed and commented on, and final rules will take effect, likely within the next year and a half. To help you prepare, we would like to invite you to learn more about improving revenue recognition and reducing risk with cloud-based financial management software for nonprofits:
- Scheduled for August 12, 2015, Why the Cloud Makes Sense for Nonprofits demonstrates how nonprofits can take advantage of the right technologies to meet the increased governance, compliance, and competition that exists for nonprofits, both now and in the future. Register here.
- On August 26, Nonprofit Accounting Experts Share Best Practices for Selecting Accounting Software will share the features and functionality that nonprofit accounting teams need to thrive.Register here.
Brittenford Systems can help you to find the right software for your nonprofit. Whether it’s gaining visibility into expenses, automating and integrating financial management, or shortening reporting time while reducing audit risk, our team has helped hundreds of nonprofits, including the following:
- College Preparatory School Installs SchoolConnect for Intacct
- Not-for-profit Professional Organization Switches from Microsoft Dynamics SL to Intacct
- Urban Land Institute Implements a Secure Web-based Reporting System
- Accordia Global Health Foundation Upgrades to Intacct Financial Accounting System
Contact us for more details on how we can help your nonprofit thrive.