The group that establishes standards for financial accounting and reporting has approved two new projects that seek to streamline the way nonprofits complete their annual financial statements.
The projects were recommended by a nonprofit advisory board to the Financial Accounting Standards Board, a private organization in Norwalk, Conn., that sets the rules that many nonprofit groups follow to satisfy creditors, investment managers, and auditors.
If the board ultimately approves any policy recommendations made through these projects, it would be the first time that significant changes have been made to nonprofit accounting in more than 20 years.
“While sound, the existing standards for financial statements of not-for-profit organizations can be updated and improved to provide better information to donors, creditors, and others,” said Leslie F. Seidman, the accounting board’s chairman. “FASB members agree it is time to revisit and refresh the not-for-profit financial-reporting model, which is nearly two decades old.”
This week’s action won’t bring any immediate changes to accounting standards for nonprofits. But it creates a process for the accounting board to review its standards for nonprofits and recommend changes. The board will invite nonprofit leaders to make recommendations and nonprofit groups to test any proposed changes before they are formally approved.
One project approved today aims to devise ways to show more clearly the assets nonprofits hold and also revise how charities report their cash flow, income, and ability to cover their expenses. It may also define key financial terms more clearly.
One idea under consideration is to ask nonprofits to report more clearly when donors have placed restrictions on funds, officials said.
The second project would examine whether the board should recommend that charities include a narrative analysis of their financial performance in their formal financial statements. That approach would mirror how public companies describe their operations in annual financial statements to the Securities and Exchange Commission.