Introduction

Twenty four years is a long time in our world. It's longer than some of us have been in the workforce. (Not me, but that's another post.) While it may be challenging to process the new FASB changes, which impact presentation and disclosure requirements, it's a long time coming.

The intention of the rule changes are for nonprofits to provide more relevant information to their fundors. While the changes themselves are fairly straight forward, they will most likely require some preparation and modifications to how you are currently managing and tracking your financial data.

Soft Trac is here to help.  Check out our tips below on how to prepare for the FASB changes.

Summary of Changes

While there is more extensive documentation out there that outlines the FASB changes in detail, below is a high level overview of the changes.

1) Net Asset Classes goes from three to two:

net assets with donor restrictions

net assets without donor restrictions

2) New Rules regarding Cash and Liquid Assets

qualitative information by included in the notes of your statement of financial position

quantitative information by disclosure of whether or not a financial asset’s is limited by

- Its nature

- External limits from donors, grantors, etc.

- Internal limits from governing boards (3)

3) Investment Income

Investment income will now be required to be reported as the net amount after investment expenses. The organization will not be required to report on the amount of these investment expenses.

4) Cash Flow Presentation

Nonprofits can opt to use direct or indirect methods and will no longer be required to show the indirect reconciliation if direct method is used for cash flow.

How to Prepare

What does this mean for tracking and reporting on your financial data? While specific updates and modifications to your setup will depend on the software that you use to manage your financial information, here are some key things to review in order to be sure you are reporting your financial data in compliance with the new rules.

Step 1: Review and Update Your Chart of Account

The temporary restricted net asset category is no longer needed or reported on in your financial statements so you may want to review and update any segment classifications in your chart of accounts that are currently using this type identification and move them to either unrestricted or restricted.

Step 2: Modify Existing Statement and Report Formats

Your reports and other searches that are currently setup to utilize the three net asset classifications will need to be update and modified to use the remaining two as you move forward.

Step 3: Verify Formulas and Calculations

Review any formulas or calculations that may be impacted by changes such as the presentation of your investment income net of any expenses, or presentation of cash flow information.

Step 4: Aggregate Data for Disclosures

With the addition of more disclosures for additional clarification on financial statements, you will want to begin pulling together all of the data that you need for disclosures.

Is this information kept in different systems? For example, is some of the donor information needed for disclosures in your donor management system but not in your financial one? If so, you may want to consider integration options so everything is accessible in your financial system. 

User defined fields, if they are available, are a good option for tracking this data.

Step 5: Confirm System Capabilities

If you are going to move to the direct method of calculation for your cash flow statement, you'll want to be sure your software can handle this method and that any configuration and setup is completed appropriately.

Step 6: Apply Software Updates

If your software includes FASB reporting, you'll want to be sure to apply any relevant software updates prior to reporting under the new method so that you are using the correct version of the software that includes the update calculation information.

Step 7: Prepare for Your Audit

You need to be sure to fully understand and implement the changes in order to help your audit run smoothly. Some additional things that can help you be prepared for your audit include:

Maintain an Audit File & Audit Trail.

Utilize Paperless Documentation When Possible.  It is easier to access and restore, and helps with organization.

Document internal controls and processes and update them to reflect any changes as a result of not only the FASB changes but any other policy modifications.

Conclusion

These are just a few ideas on how to be ready for the upcoming FASB changes. Each organization will have to determine how the changes impact them and what modifications they need to make to their existing setups to accommodate for the new reporting. 

Soft Trac is a woman-owned business and accomplished team of nonprofit software consultants.  We believe in making nonprofits "do good" better. For more information on any of the topics discussed in this blog or to learn more about the software products and services we offer, please visit our CONTACT page.

To learn more about the impact of the new FASB rules, join us at our upcoming customer conference in September. Click below for more information.

Resources Used

1. FASB modifies not-for-profit accounting rules. (2016, August 18). Retrieved May 09, 2017, from http://www.journalofaccountancy.com/news/2016/aug/fasb-modifies-not-for-profit-financial-reporting-201615022.html

2. FASB's New Standard Aims to Improve Not-for-Profit Financial Reporting . (n.d.). Retrieved May 09, 2017, from https://www.aicpa.org/InterestAreas/NotForProfit/Resources/FinancialAccounting/Pages/new-standard-aims-to-improve-not-for-profit-financial-reporting.aspx

3. FASB's New Financial Reporting Rules for Nonprofit Organizations | What You Need to Know. (2016, November 07). Retrieved May 09, 2017, from https://www.councilofnonprofits.org/thought-leadership/fasb-s-new-financial-reporting-rules-nonprofit-organizations-what-you-need-know