The Way Nonprofit Entities Present Financial Statements Will Soon Change. Here’s How We’re Responding.

In the accounting world, the way in which we do things is governed like any other professional service—by a set of standards. Standards, however, are not written in stone; they tend to change as the industry shifts and evolves. But change doesn’t happen overnight, and, thankfully, as industry professionals we have a say in it.

Recently, when the Financial Accounting Standards Board (FASB) proposed changes to a standard that dictates how nonprofit entities present financial statements, Abdo, Eick & Meyers took part in the process. You see, once the FASB assembles a draft of the proposed changes, they open it up to public comments. As chair of the DFK International/USA Not-for-Profit Committee, a team of accountants from across the country who specialize in nonprofit accounting, we led a collaborative effort to respond to the draft.

Once the standard came out for public comment, our committee worked tirelessly—as a cohesive group and with members of our respective firms—to review the standard and record comments we had about the proposed changes. We agreed with some of the changes, and we disagreed with others. When all was said and done, the draft garnered over 250 public comments (also called “comment letters”) from individuals and groups like ours.

Now, you’re probably wondering what the changes entail and why they’re necessary. This particular standard has been in place for nearly 20 years. It has both good and bad parts; no standard is perfect, after all. By changing the standard, FASB hopes to give nonprofits a better way to show liquidity on their financial statements and promote a greater level of financial transparency. The goal of solving these two issues is to make financial reporting more uniform across the board (i.e., from one nonprofit to another), which will, ideally, allow those who care about an organization—from board members to donors—to better understand its finances.

But these changes are rather dramatic, which is why FASB puts this one, as well as other proposed standards, through the ringer. Following the commenting period, FASB’s own nonprofit committee and its board members reviewed and discussed the comments received. Next, FASB hosted two roundtable discussions: one on the East Coast, and one on the West Coast. I attended the East Coast discussion, which was held in Norwalk, Connecticut, on Monday, Sept. 21. The roundtable included the FASB board members, a handful of management and finance officers from nonprofit organizations, and a several accountants and auditors like myself.

Following these roundtables, FASB will likely have to go back to the drawing board with some of the proposed changes. The date at which they’ll have a final draft remains to be determined, but with this extensive review process in place, I’m confident it will be the best standard possible.

And that’s precisely why being involved in this process is so important for us as accountants. We chose to weigh in on this particular standard because it represents a major change within the nonprofit accounting industry. We have a great deal of experience working with nonprofits, so we knew we could make recommendations that made sense for our clients.

If you have questions or concerns about how these proposed changes may eventually affect your organization, please don’t hesitate to give me a call.

To review the comment letters (ours is #232) submitted to FASB, please visit this link.

Jack Abdo, CPA, is AEM’s Nonprofit Segment Leader. A true “numbers guy,” Jack’s passion for balance sheets is second only to his passion for helping nonprofits further their mission. You can reach Jack at 952.715.3051 or at jack.abdo@aemcpas.com.