New required disclosures enhances transparency of nonprofit financial reporting. These changes will make the financials easier for the board of directors, donors and anyone else using these documents to understand them.
Sarah Goss, CPA and John Geraci, CPA, MST discuss what these changes will look like, and when they take effect. If you’re dealing with this issue and would like some help, the professionals at LGA are always here to answer questions and review your unique case. Contact us today!
[John] Hi, I’m John and I’m here with Sarah Goss today. And we’re here to talk to you about some of the changes with respect to the financial reporting for nonprofit organizations. And Sara, if you could just start, I guess by telling us what’s the biggest change that’s affected the nonprofits in this most recent update.
[Sarah] So there’s a lot of new disclosures that are required really just to enhance the transparency of the organization and provide more useful and understandable information to the board of the directors, the donors, any of the users of the financial statements.
[John] Okay. And when you say the financial statements, there’s, there’s two elements of the financials. There’s the face of the financial statements as we refer to them, which has all the numbers. And then there’s the footnotes or the disclosures, which has a lot of the words that sort of describe what’s in the financial statements, just starting with the face, which is the numbers, what changes are occurring with respect to that.
[Sarah] Sure. So the biggest change you’ll see on your statement of financial position is there used to be net assets that were unrestricted, restricted, temporarily restricted and permanently restricted. And now you’ll just see net assets with donor restrictions and net assets without donor restrictions. So anyone that doesn’t have a financial background, this is much more understandable to them, but it either has a restriction or it doesn’t have a donor restriction.
[John] That makes sense. I think that simplifies things for everyone. And then what about the footnotes and the disclosures? What’s changing there?
[Sarah] Yeah, so there’s a couple of things there. The biggest thing is that a statement of functional expenses is now required for everyone, not just health service organizations. So you can either disclose that on the face as, as its own statement or you can put it right in the notes and in the notes you also have to allocate or you have to disclose in long form how you allocated the expenses. Yeah. So if, if you have salaries you can disclose. Usually it’s time and effort or, or rent is based on square footage, whether it’s programmatic or administrative. And then you also have to disclose how you’re going to meet your general operating needs in the next year. And this is meant to show if there are liquidity issues at the nonprofit organization.
[John] Good. So a little bit of extra work, but I think it makes the financial statements more meaningful for the, for the reader. So that’s all good. And when does all this come into effect?
[Sarah] So years beginning after December 15th, 2017 so, so any, anyone now? Almost, so we’re dealing with a lot of June 30th year ends. So those will be impacted right now.
[John] Okay. So what’s it’s, it’s here now. So if you’re, if you’re dealing with this, if you need some help understanding it further, we want you to reach out to Team LGA and we’ll, we’ll help you through it. Thank you. Thanks.