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.