Nonprofit financial management means keeping abreast of new developments both within your organization and within major governance and policy boards. The Financial Accounting Standards Board (FASB) of the United States issued an important update which nonprofits should take note of in order to be ready for the proposed changes.
New FASB Nonprofit Guidelines Issues for Accounting for Nonprofits
The Accounting Standards Update (ASU) 2016-14 may be found here: Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.
There are several proposed changes that impact nonprofit financial management.
- 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. Previously, only healthcare and human services nonprofits were required to use this method. Now all are required moving forward to use this method.
Internal salaries and benefits expenses must also be disclosed as they are netted against investment returns. Net presentation of investment expense against return is now required on the face of statement activities.
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 are 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.
RBP Methods helps right-brained people navigate a left-brain world. We provide accounting software, advice, and consulting for nonprofit organizations. Our financial management systems include software such as Abila MIP Fund Accounting and AccuFund Accounting Suite. These and other software solutions for nonprofit organizations provide easy to use, understandable and useful software to track finances for nonprofits, manage donations, and donor campaigns, and much more. Contact us or call 503-648-9051 for a consultation.