Changes to Not-For-Profit Reporting
ALISON FETZER, CPA
The Financial Accounting Standards Board (FASB) issued Proposed Accounting Standards Update (ASU) Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954) – Presentation of Financial Statements of Not-for-Profit Entities in April 2015. The intended purpose of this ASU is to improve GAAP for Financial Statement Presentation by NFPs. In order to achieve the FASB’s goal, there are five main areas that are subject to change as summarized below.
- Net asset classification
- Liquidity information
- Intermediate measures of operations
- Presentation of operating cash flows
- Reporting of expenses
Net Asset Classification. Under the current guidance, there are three classifications of net assets: unrestricted, temporarily restricted and permanently restricted. Under the new guidance, there will be two classifications of net assets: without donor restrictions and with donor restrictions.
Liquidity Information. Under the new guidance, organizations will be required to disclose quantitative and qualitative information. This includes defining the time horizon they use to manage their cash – 30, 60, 90 days – and stating how their cash position compares to that standard.
Intermediate Measures of Operations. Under the new guidance, all organizations will be required to present two intermediate measures of current operations: a measure of operating excess before internal transfers and a measure of other revenues used to help fund operations.
Presentation of Operating Cash Flows. Under the current guidance, organizations can choose between the indirect method and direct method for presenting cash flows from operations. However, regardless of method used, all organizations are currently required to show a reconciliation of the change in net assets to net cash flows from operating activities. Under the new guidance, the direct method will be required. The new guidance also changes classifications of certain cash flows between operating, investing, and financing activities.
Reporting of Expenses. Under the current guidance, only voluntary health and welfare entities are required to present a statement of functional expenses in their financial statements. Under the new guidance, all not-for-profit entities will be required to report operating expenses by both nature and function.
There is a considerable amount of detailed explanation underlying these changes. The proposed changes have been met with concern by many practitioners and members of the not-for-profit community. While some changes should be relatively easy to implement after an initial first year learning curve, others could be much more challenging and costly to implement. The comment deadline for the ASU was August 20, 2015. The FASB will review all comments made and determine if there are any modifications to be made to the standard as written. Then, the ASU will either both be re-exposed and open to another comment period or an effective date will be determined.
Stayed tuned! There will be future blogs and newsletter postings diving into greater detail on the above changes. Until then, feel free to contact Alison Fetzer at [email protected] or call her at 312.670.7444 with any questions or concerns that you might have with the proposed changes. Visit orba.com to learn more about our Not-For-Profit Group.
Spam Filters Cost Nonprofits $15,000 Annually
CAITLIN GIBBS, CPA
It’s time to talk with your IT support about your email spam filters. The 2015 Nonprofit Email Deliverability Study found that, although donations made in response to emails accounted for about a third of online fundraising revenue in 2013, one in eight emails never reaches an inbox, instead being marked as spam. As a result, a nonprofit loses on average almost $15,000 each year. The study — conducted by EveryAction, a technology solution provider that helps nonprofits organize fundraising campaigns, analyzed 55 national nonprofits with mailing lists of at least 100,000. They concluded that nonprofits could raise their email fundraising dollars by 14% by reducing the emails that are being considered as junk mail.