Recent changes to the financial reporting requirements for non-profit organizations may impact how these organizations prepare their financial statements as well as influence how outsiders view the nonprofits’ overall economic health. At LMRPA, it’s our job to stay up-to-date on the very latest accounting standards to ensure our clients’ complete compliance (and convenience) at all times. Here are five things you should know about the new nonprofit accounting standards:
Net Asset Classification
Previous net asset classifications included temporarily restricted, permanently restricted, and unrestricted designations. Under the old definitions, “unrestricted” could actually carry other legal restrictions, which many stakeholders found unclear. The new mandates streamline net asset options down to just two choices: net assets with donor restrictions and net assets without donor restrictions to (hopefully) eliminate any further confusion.
Liquidity And Availability
Current regulations require an organization to disclose both quantitative and qualitative data to outline how it manages its liquid assets to meet its cash needs within one year of the balance sheet date. In short, nonprofits must be prepared to demonstrate that they have the resources to cover its operating expenses.
Previous FASB standards mandated that nonprofits had to report investment expenses separately. However, new rules require investment income to be reported net of related internal and external investment expenses (this is currently optional). The current standards also eliminate the related requirement to disclose the amount of those netted investment expenses.
Statement of Cash Flows
The latest nonprofit accounting standards grant these organizations the freedom to submit a statement of cash flows using either the indirect or direct method. An organization can make the decision on which method to use based on what will best serve those reading the organization’s financial statements. Additionally, the organization does not need to present the indirect method in the notes if the direct method is used on the statement of cash flows.
Previously, most nonprofits have been required to outline expenses on an IRS Form 990, but not always on its financial statements. The new guidelines state that expenses must be reported by function on the organization’s financial statements. Also, the organization must outline the specific methodology utilized for allocation as well as disclose consistency of methods applied.
Contact Us Today
Stop struggling to keep up with the latest accounting standards for your nonprofit organization. Contact Leone, McDonnell & Roberts, Professional Association today to discuss the current requirements with one of our veteran tax and accounting professionals.