FASB 958—it’s the biggest change to nonprofit financial reporting standards in more than a decade, and the deadline for compliance is staring our industry in the face.
Nonprofits are Running Out of Time to Implement New Reporting Standards
The amendments contained in the Accounting Standards Update 2016-14 (Topic 958) became effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods beginning after December 15, 2018.
In other words, it’s go-time for FASB 958 Nonprofit Accounting Standards. At this point, every nonprofit organization should be preparing compliant financial statements for current and future fiscal periods.
A Brief Overview of FASB 958 Changes
To make financial statements easier to digest for external stakeholders, including donors and others outside the nonprofit industry, FASB 958 amends how nonprofit organizations should report about:
- Net Assets: Three former classes of net assets become just two—‘net assets with donor restrictions’ and ‘net assets without donor restrictions.’ Underwater endowments (current value less than the original gift) will be listed as net assets with donor restrictions.
- Statement of Activities: Nonprofit organizations need to present the amount of change in each of the classes of net assets and the total net assets, as well as two subtotals of operating activities corresponding with the changes in net assets without donor restrictions. Operating expenses will include information about their nature and function, as well as enhanced disclosures about methods of allocating costs. Finally, a ‘net presentation’ of investment expenses against returns will be included on the face of this statement.
- Liquidity: Additional/enhanced qualitative and quantitative disclosures are required on the face of the balance sheet or in the notes.
- Cash Flow Changes: Instead of providing an indirect reconciliation when using the direct method of presenting operating cash flows, the new guidelines specify nonprofits can select the presentation method that best serves the entity, with no reconciliation required.
New Standards Provide an Opportunity to Improve the Story for Stakeholders
Katie McCloskey, Sage Intacct product manager, sees the new standards as a big opportunity for nonprofits to review their internal reporting processes and seek ways to improve the financial report products they produce.
“Nonprofit organizations need to have more conformity in terms of how they're presenting their revenue picture with how it's done in for-profit entities, so a more common conversation can take place, while still recognizing that there are differences.”
― Katie McCloskey, Product Manager, Sage Intacct
While the overall goal is more easily understood financial reports for outsiders, organizations cannot sacrifice the level of financial detail that internal stakeholders require to do their jobs effectively. During a conversation about FASB 958 with nonprofit industry veteran, Steve Bolan, on the Next in Nonprofits podcast, McCloskey observed, “even though it's a simplified presentation style from an external perspective, from an internal perspective, I think that there's definitely an expectation that we'll continue to have a more granular focus on level of restriction.”
Automation Eases the Transition to New Standards
Sage Intacct has been working hard to make this transition to the new standards for financial reporting much easier. Sage Intacct provides a set of prebuilt FASB 958 compliant reports, including:
- Statement of Financial Position
- Statement of Activities
- Statements of Cash Flow (both Direct and Indirect)
- Statement of Functional Expenses
- 990 reporting worksheets
A new Compliance Dashboard provides quick access to all compliance reports in a single location. With all the information in one place, organizations will be able to accelerate compliance with the new nonprofit accounting standards and streamline their ability to generate a complete story of their organization’s financial health.
Recognizing that the transition to simplified reporting could feel disruptive to the flow of granular detail nonprofit financial executives expect, financial statements in Sage Intacct can be viewed in the new FASB 958 presentation style, in the previous style, or side by side in both formats simultaneously. From an internal perspective, if the old style provides more insight or a better frame for year-over-year comparisons, it is still available to make the transition as smooth as possible.
Create a Qualitative Story Alongside Quantitative Information
The new standards place much more focus on disclosures. With financial statements simplified, FASB wants to encourage nonprofits to spend more time in the financial disclosures to tell a more complete story about their financial health. Commentary should now include both quantitative and qualitative information to help those reading the financial statements understand the organization more fully and holistically.
To help nonprofits enhance their disclosures, Sage Intacct now features a disclosures dashboard that automatically assembles quantitative information useful in financial reporting. The dashboard’s collaborate function enables qualitative conversations to take place beneath each of the quantitative components, so the financial team can assemble all the information needed for complete disclosures.
“Sage Intacct’s disclosures dashboard gives nonprofits the best of both worlds. You get the quantitative and the qualitative information centralized together. The big benefit is that year over year, you can just update the date, and it will roll forward all of the quantitative information, and then you can evaluate if the qualitative conversation should be adjusted,” said McCloskey.
Current Sage Intacct customers who are using the nonprofit Quickstart templates can begin utilizing all the FASB compliant reports and dashboards right away. By leveraging this functionality, nonprofit organizations can streamline reporting to the board and tell a better story for donors and funders.
Ready, Set, Go!
Listen as Katie McCloskey of Sage Intacct and Steve Boland, host of Next in Nonprofits, discuss the ripple effects these updates will have on the financial systems, processes, and reports that nonprofit finance teams use daily.
- Get ready to align financial reporting with FASB 958 standards.
- Understand why nonprofits should seize this opportunity to improve internal processes as well as board-level and external communications.
- Learn to tell a better story by blending quantitative and qualitative information.
- Hear how new enhancements to the Sage Intacct nonprofit accounting software solution helps organizations streamline compliance.