In August 2016, FASB released updated accounting standards. Bulletin FASB ASU 2016-14 provides guidelines for not-for-profit entities on the forthcoming changes.
The amendments became effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods beginning after December 15, 2018. All nonprofits should comply with the new standards this year.
This blog includes a few helpful tips to streamline compliance with the new FASB standards.
Why Did FASB Update the Standards?
FASB intends that the new, updated reporting standards provide a clear and accurate picture of a nonprofit’s finances to donors and the general public. By reducing net asset classifications, requiring the inclusion of net presentation of expenses versus returns, qualitative and quantitative disclosures surrounding liquidity, and cash flow changes, FASB seeks to provide guidelines for nonprofits that will help them tell their financial “story” in a way that more people can easily understand.
FASB Update Refresher
To summarize, FASB updated the following reporting requirements in bulletin ASU 2016-14 for nonprofit entities:
- Net Assets: Net asset classifications changes from three to two: net assets with donor restrictions’ and ‘net assets without donor restrictions.’ Underwater endowments (current value less than the original gift) will be listed as net assets with donor restrictions.
- Statement of Activities: Nonprofit organizations must present the amount of change in each of the classes of net assets and the total net assets, as well as two subtotals of operating activities corresponding with the changes in net assets without donor restrictions.
- Liquidity: Additional/enhanced qualitative and quantitative disclosures are required on the face of the balance sheet or in the notes.
- Cash Flow Changes: The new guidelines specify that nonprofits may select the presentation method of operating cash flows that best serves the entity with no reconciliation required.
Nonprofits had ample time to choose how they would implement the changes to their net asset classifications. Those still struggling with preparing financial reports according to the revised standards must intensify their efforts now to meet the deadlines.
Spreadsheets: A Risky Method of Financial Document Preparation
Many nonprofits continue to use spreadsheets to prepare financial documents. The use of spreadsheets comes with many risks. One transposed digit, for example, can throw off all of your calculations. Formulas are notoriously finicky and often take several tries to get the calculations exactly right.
Although spreadsheets continue to be used by many nonprofits, they aren’t the best way to prepare them. The way to minimize most mistakes and streamline financial document preparation, including preparation of new reports based on FASB ASU 2016-14, is to update your current nonprofit accounting software to accommodate the revised net asset classifications.
EMK Takes the Guesswork Out of AccuFund Setup
EMK offers implementation, setup, and training to take the guesswork out of AccuFund setup. With the use of classifications, AccuFund can easily create reports compliant with FASB requirements. EMK can train any user on the changes necessary to produce these financial reports as well as any other reports management would need.
AccuFund is cloud accounting for nonprofits with the unique financial accounting and reporting requirements of nonprofit entities built into the system. Unlike spreadsheets, you will not have to calculate items to include in reports manually. AccuFund does the work for you. Enter information once, and the system can pull it into multiple reports. It streamlines data entry and provides accurate, easily shared, and used data for your nonprofit organization.
Learn More from EMK Inc.
Since 1993, EMK Inc. has helped nonprofits and government agencies with their accounting software choices and implementation. We install AccuFund financial software and ongoing support to nonprofits, endowments, government agencies, and others seeking software that’s built to work with how nonprofits manage their money. For more information or to speak with someone about AccuFund, call EMK Inc. at 888-443-9399 or contact us.