Big Changes in Nonprofit Accounting on the Horizon

“The only constant thing is change.” – Heraclitus

The age-old expression about how the only the permanent thing in life is change is about to ring true in how nonprofit organizations present their financial statements.

According to a recent Accounting Today article, the Financial Accounting Standards Board (FASB) is getting ready to unveil a set of proposals to update the current net asset classification scheme and the information about liquidity, financial performance, and cash flows that nonprofits are required to disclose.

“The Board decided that the overall expected benefits of the proposed financial reporting changes justify the perceived costs of preparing and using the information, subject to consideration of other input and information received through public exposure and related outreach,” according to an FASB summary of the meeting.

Here are some of the proposed changes:

  • The number of net asset classes presented in a statement would be reduced from three to two.
  • The new classification would convey net assets with donor-imposed restrictions and without donor-imposed restrictions.
  • Nonprofits also would be required to report expenses by their nature and by function.
  • All nonprofits would be required to prepare their cash flow statements using the direct method.

The FASB plans to issue the proposals in mid-April and ask for public comments.

SC&H Group looks forward to assisting its nonprofit clients in gaining an understanding of how the proposed standards may impact their accounting systems and financial reporting, and developing their implementation plans. To that end, we will provide an overview of the proposed standards at our upcoming nonprofit summit to be held on May 19th.

Are you a nonprofit leader seeking clarity around these potential changes? We recommend contacting Mike Young, a Director with SC&H Group, here. In addition, SC&H Group’s nonprofit experts can help provide the insights you need to assure the reliability of your financial records, evaluate the adequacy of internal controls, and produce strategies that help you grow in today’s economy.

To learn more about our services for this unique sector, please click here.