Know how: Changing financial statement standards
The Generally Accepted Accounting Principles (GAAP) used by nonprofits are changing in the new year. If you’re a board member, a nonprofit CFO or in charge of corporate philanthropy, here’s what you need to know:
1. Virtually all nonprofits are affected – IF they prepare financial statements.
The changes in GAAP standards apply to foundations, private colleges and universities, health care providers, cultural institutions, religious organizations, trade associations, social services nonprofits and more. (If you do not yet require financial statements but are a growing nonprofit, it will make it easier to transition in the future if you start keeping your books in accordance with GAAP standards now.)
2. Say goodbye to confusion between “temporarily” and “permanently” restricted funds.
The new standard only requires two classes of net assets be disclosed – “with donor restrictions” and “without donor restrictions.” With this simplification, the Financial Accounting Standards Board hopes to reduce complexity.
3. The new standard aims to clearly identify a nonprofit’s liquid assets.
On financial statements, nonprofits will be asked to clearly explain quantitatively and qualitatively the degree to which restricted funds might affect the financial resources at their disposal.
4. These new standards go into effect for fiscal years starting after Dec. 15.
If your nonprofit is on a calendar fiscal year, the new standards will begin with the year that starts on Jan. 1. If your fiscal year starts midyear, you have some cushion
to roll out these changes.
5. Prepare now, enact changes when the fiscal year begins – and save yourself the headaches later.
Three steps: Ask your accountant about the changes to come and how they will affect your organization. Alert your board that these changes are happening and may require time and resources to come into compliance. And make any necessary changes as soon as possible.
Kathi Silicato is a partner in Gunnip & Co. CPAs’ assurance practice.