Big Changes are Expected for Nonprofits

What do users of nonprofit financial statements really want to know?

Most users want to know if the organization’s financial resources are effectively managed and sufficient to assure long-term viability. What resources they have available to them and how are they using these resources.

There have not been any major changes to the nonprofit financial statements since 1993.  It was been suggested that it is time to re-evaluate the financial statement presentation.

The Financial Accounting Standards Board(FASB) is getting ready to issue their proposals that could offer considerable revisions to the way Nonprofits present their financial statements.

The proposals address the areas of net asset classes, financial performance, reporting of expenses, cash flow statement and disclosures to the financial statements.

Here is what we can expect …

Instead of remaining with the three classifications of net assets (unrestricted, temporarily and permanently restricted) there will be two classes, “without donor restrictions” and “with donor restrictions”.

There will be a required footnote disclosure, basically, the organization will need to show if they have enough liquid assets to meet their operational need based upon their time horizon.

There will be flexibility with expense reporting. The organization can report expenses on the face of the financial statements either by function or by natural expense but there will probably be a high level footnote disclosure with a table-type format showing function and natural.  On the plus side, there will no longer be a statement of functional expense required for voluntary health and welfare organizations.

The cash flow will now be presented on the direct method. Some items on the cash flow statement will be categorized. There will be changes to what is considered to be operating verse financing and investing activities.

It will be interesting to hear what comments the nonprofit organizations will offer in regard to these proposed changes.

-Terry Ann Wheeler, CPA, Audit Manager