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It’s been nearly 20 years since there were significant changes to financial reporting standards for nonprofit organizations. But change is on the horizon after the Financial Accounting Standards Board (FASB) announced a new standard-setting project and a research project intended to improve financial reporting.

Financial Reporting Changes Coming for Nonprofits

  • 2/9/2012

Financial Reporting Changes Coming for Nonprofits

It’s been nearly 20 years since there were significant changes to financial reporting standards for nonprofit organizations. But change is on the horizon after the Financial Accounting Standards Board (FASB) announced a new standard-setting project and a research project intended to improve financial reporting.

“While sound, the existing standards for financial statements of nonprofit organizations can be updated and improved to provide better information to donors, creditors, and others,” said FASB Chairman Leslie F. Seidman when announcing the projects.

Both of the new projects are the result of suggestions from FASB’s Not-for-Profit Advisory Committee (NAC) over the course of the last year.

Standard-setting project

The standard-setting project will focus on financial statements and related notes that are unique to nonprofit organizations. FASB says it will re-examine existing standards for financial statement presentation by nonprofit organizations, and focus on:

  • Improving the current net asset classification scheme and information provided in financial statements.
  • Improving notes about an organization’s liquidity, financial performance, and cash flows.

In considering the potential impact of new standards on those who use nonprofits and those who are tasked with explaining information to a nonprofit board of directors, some questions should be asked:

  • Does the current net asset scheme provide decision-useful information to creditors, donors, regulators, boards, and other users of nonprofit financial statements?
  • Do the net asset classifications make it difficult to interpret what funds are available to the organization for expenditure?
  • Is it possible to decipher financial performance from those changes in each of the net asset categories?

Changes resulting from this standard-setting project could enable all users and creators of financial statements to answer “yes” to these and other questions.

Research project

The research project will study other means of communication that nonprofit organizations currently use in telling their financial story. Specifically, the project will:

  • Review best practices followed by nonprofit organizations in this area and how such communications enhance the understanding of donors, creditors, and other stakeholders about the financial health and performance of the organization.
  • Determine whether FASB, through its leadership or standard-setting efforts, can contribute to promoting such communications.

In earlier discussions by NAC, the research recommendation received unanimous support. Members felt strongly that adding a section to financial reports to “tell their story” will help make nonprofit organizations more accountable.

In addition, increasing reporting outside of, and in addition to, financial statements will likely be considered by the research project. This is expected to be controversial. More required reporting may not be a desired outcome for many tasked with creating these reports in the nonprofit world.

No timeframe was announced for the completion of these projects and the development of proposed new standards. Changes that may come from these projects are likely years in the future.


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