The Financial Accounting Standards Board (FASB) has developed a new set of accounting standards that, if passed, will greatly alter the way nonprofits prepare their financial statements. Some financial professionals say that proposed Accounting Standards Update No. 2015-230 — Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities — represents the biggest change in nonprofit accounting standards in 20 years.
The draft proposes changes to the presentation of net assets requiring only two classes instead of three, one with restrictions and one without, both on the statement of financial position and on the statement of activities. It also would require changes to the reporting of operating activities on the statements of activities and cash flows. And investment income generally wouldn’t be included in the results of operations. Another change would require nonprofits to present on their statements of activities a uniform measure of operations — reflecting their mission and the availability of funds.
Additional financial statement disclosures would be required, including more information on board restrictions, liquidity of assets and expenses by both their nature and function. Also proposed are changes to the presentation and disclosure of investment income, underwater endowment funds, methods used to allocate costs, and expirations of restrictions.
Critics of the proposed standards say that they differ from the Generally Accepted Accounting Principles now in use, and that compliance could be costly. The FASB asserts that the benefits of the new rules — easier-to-understand financial statements and greater transparency — would outweigh any downsides. No effective date for the proposed standards has been set.
Nonprofits and concerned individuals may comment on the draft by August 20, 2015. You can see the full proposal, and questions for which the FASB is seeking input, at http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176165949852.
Most nonprofits rely on multiple income sources
More than one-third of U.S. charities (39%) receive over half of their income from contributions or grants from individuals, foundations or corporations. So concludes information revealed during a which also found that 72% of charities now have earned income streams. And 21% of charities depend on earned income for more than 50% of their revenue. The survey also found that 65% of charities receive government funding. And 22% of charities rely on government funding for more than half of their revenue.
How diverse are your income sources? If one of them dried up, would your organization remain financially stable? If you’re not sure and need a second opinion, give us a call. We’re here so that you don’t have to stress out over these types of situations.