The Financial Accounting Standards Board (FASB) has officially adopted changes to the reporting of financial information for nonprofit organizations.
The goal of the pronouncement and rules is to make nonprofit reporting more informative related to liquidity, financial performance, and cash flows. The end result is to provide better information and make clearer the limitations placed by donors, laws, contracts, and governing boards about the entities’ liquidity, classes of net assets, performance, and related terminology, while still adhering to the concept of Restricted and Unrestricted Net Assets.
Eliminating the distinction between temporary and permanent restrictions, and reducing the complexity of reporting are highlights of the new updates. Enhanced disclosures in notes provides useful information for both donors and management. Requiring nonprofits to present more standardized measures of operations becomes helpful in gauging financial performances, plus making changes in the presentation of cash flows using the direct method will certainly increase the ease of understanding the information.
The crux of the changes is distinguishing between funds with and without “donor restrictions.” Doing away with the concept of temporary or permanent restrictions eases the burden on reporting and maintaining precisely what constitutes each category. This was a fundamental portion of the FASB 116/117 reporting changes.
How will this affect the typical Abila MIP Fund Accounting™ user? MIP users will no longer need to maintain a Restriction segment to distinguish between temporary and permanent restrictions, since money will be either donor restricted or not. Users will be able to create statements of cash flows using the Direct method, which is easier to create and understand.
The final draft of the new standards was completed earlier this summer; the new standard was adopted just last week. This will effect financial reporting for years beginning upon adoption.
For more information, read the full Exposure Draft. And, stay tuned for Abila’s latest research on nonprofit finance, being released on Wednesday, September 14. The report will have an entire section devoted to Rules and Regulations, including FASB challenges.
About the Author
Michael Golub is President of NP Solutions, Abila’s Partner of the Month for August 2016. Each month, Abila recognizes a top Business Partner based on its continued support of our clients. Abila Business Partners are trusted experts authorized to resell and implement one or more Abila products.