On the timeline of financial accounting history, 2018 may well be the “year of the nonprofits.” Accountants and auditors began applying FASB Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which became effective for periods beginning after December 15, 2017, on notfor-profit (NFP) financial reporting systems and processes. In addition, FASB revenue recognition standards will also now be applied to nonprofits following ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, issued in June 2018, and the definition of “collections” has been refined in ASU 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections, issued March 21, 2019.
NFPs are major participants in the U.S. and global economy, and financial reporting requirements that specifically address these entities can have a major effect on resource allocations. Data from the National Council of Nonprofits indicates the economic impact of the nonprofit sector includes providing over 5% of U.S. GDP and employing 10% of the American workforce (https://www.councilofnonprofits.org/economic-impact). There are some excellent information sources available to assist accountants and NFPs in applying the new standards, including the aforementioned National Council on Nonprofits, FASB, and the AICPA Not-for-Profit section.
National Council of Nonprofits
National Council of Nonprofits
The National Council of Nonprofits is a network of over 25,000 NFPs and state associations, which share resources through the web-site at https://www.councilofnonprofits.org/. The council offers member-generated resources to aid in operations and finances, ranging from best practices to fundraising advice to research reports, including several studies by other organizations. Many CPAs represent NFP clients and serve on boards of directors, and will be pleased to find many useful materials for themselves and the organizations they represent on the National Council of Nonprofits website. The site is very user-friendly and easy to navigate. Resources are freely accessible without registration, and the articles contain substantial reference links and are available in printer-friendly versions.
The Tools & Resources section of the website (http://bit.ly/2CxteQN) is probably the most relevant for accountants; it includes topics such as financial management, ethics and accountability, and boards and governance. The financial management main page (http://bit.ly/2FrWvxg) offers access to more than three dozen materials, including the “Nonprofit Financial Management Self-Assessment Tool,” an eight-page checklist covering financial planning and budget systems, accounting policies and procedures, transaction recordkeeping and backup practices, financial statement reporting, and a board of directors overview of financial reporting (http://bit.ly/2YfeKyp). “Cash is King: Managing Cash Flow for Nonprofits” is a 60-minute webinar that includes detailed tips for creating accurate cash flow projections, and would probably be helpful for small business clients and new staff accountants, in addition to NFP managers (http://bit.ly/2JtPr8m). “Internal Controls for Nonprofits” is a handy webpage with links to great resources such as guidebooks, handbooks, and example policies (http://bit.ly/2TPjhcl).
“Understanding the New FASB Accounting Standards—An Overview” makes a great point that an NFP’s financial statements represent its mission in “another language,” that is, the language of accounting (http://bit.ly/2Tqb0qe). The article addresses the ASU 2016-14 terminology regarding definitions of restricted contributions and presentation on the financial statements, the difference between liquidity and “bottom line,” and classifying expenses by function versus by nature. The reference section includes links to the ASU on FASB’s website, several articles on the topic, an Excel-based tool and implementation guide by the FMA Institute (see sidebar), and a 60-minute archived webinar that presents an overview of the changes.
The “Nonprofit Audit Guide” is a table of contents webpage with links to underlying resources (http://bit.ly/2TsB4AQ). A good place to start is the “State Law Nonprofit Audit Requirements: 50-State Chart,” with links to applicable state codes. The guide also includes short articles explaining what an audit is and the options for compilation and review of financial statements. One interesting article discusses “Why a Nonprofit Might Conduct an Audit Even When the Law Doesn’t Require It,” as well as the contrasting case for not conducting an independent audit. The Additional Resources webpage (http://bit.ly/2TPEyma) includes a fiscal management activities calendar (see sidebar) and a 60-minute webinar titled “Nonprofit Audits in a Nutshell,” which addresses how NFP entities should prepare for an audit.
Recent milestones in FASB’s financial reporting guidance activities include the online Accounting Standards Codification (ASC), private company guidance, and notfor-profit standards. FASB has specific web-pages devoted to nonprofits on its site (www.fasb.org). Users can access updates related to Topic 958, “Not-for-Profit Entities,” by logging into the online ASC (https://asc.fasb.org), for which a free basic account is available. The quickest way to locate the 2016 and 2018 ASUs for NFPs, however, is directly on FASB’s website (http://bit.ly/2Cxwlbv).
ASU 2016-14 was issued on August 18, 2016 and refines FASB’s net asset classification requirements down to two categories: net assets with and without donor restrictions. Expenses should be presented by nature as well as function, with analysis of the relationship between the two classifications. The amendments also address presentation of information about liquidity, financial performance, and cash flows (http://bit.ly/2U27syJ).
ASU 2018-08 was issued on June 21, 2018, and represents the completion of FASB’s revenue recognition projects on grants and contracts by nonprofit entities. The amendments focus on whether transactions should be treated as contributions or exchanges. Contributions will continue to follow Topic 958 guidance, while exchanges will fall under Topic 606, “Revenue from Contracts with Customers” (http://bit.ly/2UQ7A1s).
AICPA Not-for-Profit Section
The AICPA’s Not-for-Profit Section main page (https://www.aicpa.org/inter-estareas/notforprofit.html) serves as a portal for the organization’s wide range of resources related to NFP accounting, auditing, governance, and tax reporting. The NFP section has a good resource library (http://bit.ly/2uoF0bU), but of course, many of the materials are restricted to section members. An excellent segment on the main NFP webpage highlights open-access resources that are worth exploring. “Top Issues for Not-for-Profits this Year” (updated October 2018) introduces the ASU 2016-14 functional expense presentation requirements, briefly announces the ASU 2018-08 revenue recognition standards for grants and contracts, and raises some interesting questions regarding gifts-in-kind (http://bit.ly/2WkklBP). “New FASB Standard Addresses Accounting for Grants and Contracts” (June 2018) provides a short but helpful explanation of the steps necessary to determine whether a transaction is reciprocal (an exchange) or nonreciprocal (a contribution) under ASU 2018-08 (http://bit.ly/2FwbJm5).
The jewel of the NFP section’s free resources is the ASU 2016-14 Toolkit (http://bit.ly/2FrOTvC), although some of the materials do require basic AICPA membership to access. “Exploring FASB’s Not-for-Profit Reporting Standard: ASU 2016-14” is a 12-page PDF that includes some useful Illustrative Note Disclosures tied to specific ASU requirements (http://bit.ly/2FjTfnq). Resources that require basic membership include a download of the complete toolkit, an implementation checklist, a staff training PowerPoint, and financial statement examples.
The NFP Governance & Management Resources area of the resource library (http://bit.ly/2USCaHK) is a collection of governance, risk and financial management, and policy materials, although most require NFP section membership. One of the free resources, “Board Responsibilities: An Overview” is a downloadable five-page primer that summarizes the strategic, legal, and fiduciary responsibilities of directors, and is a helpful introduction for new board members, as well as a reminder for experienced members (http://bit.ly/2TmBmct). “Determining Whether Your NFP Needs a Financial Statement Audit” is a six-page PDF document that may be most useful for CPAs who would like to convince NFP organizations of the importance of external accounting oversight, and includes a handy comparison table of compilation, review, and audit services (http://bit.ly/2FlpD9a).
More Nonprofit Tools
FMA Institute FASB Ready Tools and Webinars
Propel Nonprofits Program Budget and Allocation Template
The Wallace Foundation Fiscal Management Activities Calendar
NYSSCPA Event Calendar (includes CPE)