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FASB

Are You Ready for the FASB Accounting Standards Update (ASU) No. 2014-09?

By | Abila, Accounting, Audit, CPA, FASB, Nonprofit | No Comments

By now you’ve probably heard of FASB Topic 606. This is an accounting standards update that seeks to provide greater clarity to organizations on how to report revenue. After the initial release of the update, several clarification statements have been issued to help organizations and companies prepare for the new guidelines. As you’re getting ready to implement the new standards (they go into effect for certain not for profits starting December 15, 2017, and for most others December 15, 2018), it’s important to understand both the gist of the update as well as the clarifying statements that have been issued.

What Is FASB Topic 606?

FASB 606 deals with revenue from contracts with customers. FASB Accounting Standards Update No. 2014-09 seeks to streamline statement preparation, as well as provide better disclosure to the public and to others. Clear, transparent reporting is essential for nonprofits; it helps build trust between nonprofits and their constituents. With FASB Topic 606 and Accounting Standards Update No. 2014-09, the revised guidelines are intended to help nonprofits clearly disclose their relationship with their customers and the revenues such relationships and contracts provide.

Another reporting area that FASB No. 2014-09 seeks to improve is the ability for people to compare financial statements. If revenue is reported differently, it makes it harder to compare them across entities. If revenues follow a consistent reporting pattern, they can be compared more easily.

Clarifications on the Original Statement

Accounting professionals charged with the implementation of this revised standard have asked for, and received, clarification on several items. First, intellectual property issues required several clarifying statements. Organizations who license their IP needed information on how to record revenues. A nonprofit health association, for example, who licenses a special ‘badge’ that packaged food companies can put on their products to indicate they meet specific dietary guidelines needs to understand whether they should record revenues at once or over time as they occur.

So far, FASB has issued four clarifications:

  1. ASU No. 2016-08, which addressed principal versus agent considerations.
  2. ASU No. 2016-10 identified performance obligations and licensing
  3. ASU No. 2016-12, clarified a narrow scope improvements and practical expedients directed at items such as the reporting of noncash consideration, contract modification and completed contracts at transition, collectability matters, and similar matters.
  4. ASU No. 2016-20 which correct loan guarantees, contract costs—impairment testing, and provision for losses on construction-type and production-type contracts. Because this area is so complex, interested people should keep up to date with any further changes on 2016-20.

Caution: Implementation Ahead

With all of the clarifications and updates, it’s difficult to say whether or not organizations are truly ready to implement the new rule. Although many indicate that they are, it may be wishful thinking.

A few other cautions have come above. The new rule indicates that transaction prices should be allocated to each performance obligation based on the stand-alone price. Software companies are paying particular note of this requirement since it may accelerate revenue recognition for their products.

Another area where this may impact revenue recognition is on bundled items. Revenue recognition for bundled, package items may now be considered one item instead of many.

Lastly, revenues must be recorded when it appears probable that they can be collected. For nonprofits, this means that they cannot record as donations or revenues money left to them with conditions attached unless it becomes very clear that those conditions will be met.

Confused? Let Welter Consulting Help

If you’re confused about all the FASB changes and the implementation of these new guidelines, Welter Consulting can help. Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Financial Transparency

By | Accounting, Audit, Budget, FASB, Grant Management, MIP Fund Accounting, Nonprofit, Uncategorized | No Comments

According to the Merriam-Webster Dictionary, one of the definitions of “transparency” is “characterized by visibility or accessibility of information especially concerning business practices”.  Transparency in your financial statement means it should be user friendly, clear, easily understandable and everything should be properly disclosed.

Importance of transparent financial statements

  • Proactive transparency and communication are essential to organizational success. Stakeholder understanding and support  is a direct result of transparency and open communication.
  • A practice of continuous, transparent communication enables an organization to better respond to crises – such as physical disaster, fraud, or the sudden loss of a leader – and execute more robust crisis communication strategies.
  • Establishing a culture of transparency is critical for effective governance, constituent engagement, and responsive management.
  • Opening communication channels can help to establish meaningful and productive relationships with constituents. These relationships can have a significant impact on long-term performance.

Start with the Stakeholders

Know both internal stakeholders (board, committees, senior management, management team, staff, volunteer workers) and external stakeholders (customers, donors, funders, grantors, creditors, partners, government, public). It is imperative that you understand their needs and expectations. Information needs, communication methods, and information consumption patterns vary substantially from segment to segment. Meeting and exceeding the information needs for each of these groups is critical to delivering satisfaction. 

If that’s too overwhelming, start by identifying your top two to three stakeholders. Determine what they need/want and go from there.

Strategic messages with financial statements

Make the data you have today more understandable and relatable; enhance the story and improve disclosure. When we think about financial statements we think revenue inputs and expense outputs but we need to be thinking more about outcomes.

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

New Standards Mean Changes to Disclosures and Financial Statements

By | Abila, Accounting, Audit, CPA, FASB, Grant Management, MIP Fund Accounting, Nonprofit | No Comments

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14. This document, entitled, “Presentation of Financial Statements for Not-for-Profit Entities” changed how information is presented in financial statements. The goal was to make information clear and easily understandable for the average person reading a nonprofit’s financial statements.

Areas that the new standards address include:

* Net asset restrictions: The previous categorization of net asset classifications confused many people, especially the term “unrestricted.” The new net asset restrictions bring the categories down from three to two to provide clarity.

* Liquidity: It was difficult under the old standard for people to see liquidity and compare liquidity amounts among various nonprofits.

* Cash flow: Previously, indirect reporting was required, but reviewers found that indirect reporting methods confused many people.

* Expenses: Not all nonprofits reported expenses the same way.

The Changes: Nothing New to Track, Simpler Reporting

The changes required by FASB for nonprofit accounting do not ask for any new information to be recorded or tracked. Instead, it simplifies the method of reporting and recording, streamlining it so that it is more consistent among nonprofits. This enables donors, members, and the public an easier way to compare nonprofit organizations and understand their finances.

The biggest changes are the net asset classifications, disclosure, and expense designation

1. Net asset classification: As previously stated, net asset classifications are changing from three previous potential classifications to two. The two new categories are net assets with donor restrictions and net assets without donor restrictions. Details about the categories are disclosed in the footnotes. The footnotes are expected to provide detail on the funds themselves and how they are apportioned.

2. Liquidity disclosure: On the liquidity disclosure, the new rules require that qualitative details communicate how the nonprofit manages the liquid resources available to meet its cash flow needs within a one year period. Quantitative information must also be provided about the resources available within one year. Additional information is required on the nature and type of liquid assets and any external limitations placed on them by grantors, donors, local laws, etc. Board limits must also be specified.

3. Expenses: Expenses must now be disclosed by natural and functional categories. The methods used to allocate costs must also be described.

The changes recommended by FASB aren’t a surprise, but are long in coming. The continual push to improve communications around financials for nonprofit entities is a welcome one that adds a layer of transparency to the nonprofit world that donors have been seeking.

If you’d like assistance meeting the new FASB requirements, speak with Welter Consulting today. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

New FASB Rules Help Nonprofits Tell Their Stories

By | Accounting, FASB, Nonprofit | No Comments

Can you really tell stories with numbers? The FASB thinks so. The new Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities takes 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. The goal is to help nonprofits clearly state, through their financial statements, their ‘story’ so that donors and others can make better-informed decisions.

Welter Consulting helps nonprofits gather and share their financial ‘stories’ through smart money management and software that supports better financial management. As you learn more about FASB Topic 958, consider upgrading your software to provide you with the updated and detailed accounting information that will be required moving forward.

FASB Topic 958

Much has been written in the financial press about FASB Topic 958, or the new Accounting Standards Update. It is the first such update in 20 years and proposes several major changes for nonprofit accounting methods.

These changes include:

* Two net asset classes instead of three.

* Changes in how underwater amounts of donor-restricted funds are reported.

* Requirements to how nonprofits report liquidity risks.

* Reporting expenses by function and nature, as well as an analysis of expenses by both function and nature.

Why all the changes? The FASB recognizes that numbers tell an important story. The public has a right to obtain a clear, concise, and detailed summary of that story through a nonprofit’s financial statements.

Although much of the information was included by nonprofits, the new requirements hope to force nonprofits to accurately, clearly, and completely disclose how they are tracking and using funds.

Donors Require Fiscal Transparency

Donors today are just as philanthropic-minded as past generations. They are, however, deeply concerned that their donations are used for the purposes for which they are given. They want to know that their money is going to fund specific activities. Although most donors do recognize that some money must be spent on operational expenses, most want to see their donation going for the good of the cause or to fulfill the organization’s mission.

You can help donors understand your financial reports in many ways:

* Providing both required disclosure as well as additional, simplified language for the public to explain the numbers on your reports.

* Campaigns to increase awareness for your activities and initiatives.

* Donor outreach and communications, including social media and newsletters that shares how funds are used.

The greater the transparency around how your funds are used, the greater the trust between donors and organizations. The FASB requirement is important to note, but of even greater importance is winning and keeping the public’s trust. Smart nonprofits are already taking steps to ensure that this happens, along with steps to comply with the new FASB regulations.

At Welter Consulting, we are committed to helping you find affordable, useful technology, and to learning how to use that technology to its fullest capacity. We work exclusively with nonprofits and government agencies to help them find and use technology solutions. For more information, please contact us or call 206-605-3113.