New rules issued by the Financial Accounting Standards Board (FASB) make three significant changes that we think can help nonprofit donors, staff, and board members understand the financial health of their organization. Since accounting jargon can be off-putting, we’ve created a new FASB resource webpage to help you to feel more comfortable understanding the changes. We’ve also recorded an “explainer” with Curt Klotz, Vice President of Finance and Chief Financial Officer at Propel Nonprofits, who gives an overview of three significant changes to the standards that became effective for fiscal years after December 2017. In a nutshell, here’s why we are hopeful that the new standards will actually smooth the way for increased understanding about a nonprofit’s financial health:
The new standards remind nonprofit staff and board members about the importance of documenting in writing how donors restrict their contributions. Clarity about how much money is restricted for specific uses or time periods will further protect donor intent and give board and staff a clearer picture of what funds are available for other uses.
The new standards will also push us all to have a “liquidity plan” for surviving cash flow droughts by requiring the disclosure of what cash is available, as well as requiring disclosure in writing of whatever plan the nonprofit has to address cash shortfalls.
Finally, the new standards change how functional expenses are reported and appear on the financial statements, enabling a clearer-eyed look at how much it really costs to advance the nonprofit’s mission. Implementing these standards should help nonprofits – including those nonprofits that do not conduct an independent audit – move towards stronger financial health. All this and more is explained on our FASB resource webpage. You can also listen to the shorter “explainer” podcast for an overview and some useful tips.