How Is the Field of Nonprofit Accounting Changing?

Just like individuals and for-profit companies, nonprofit organizations have financial information to keep track of and statements to prepare. There are plenty of opportunities for certified public accountants (CPAs) to work with nonprofit clients, even those that are tax-exempt. However, nonprofit accounting, like other areas of the accounting field, is constantly evolving.

The Development of New Proposals for Nonprofits

While change is a constant in the field of accounting, experts say the niche of nonprofit accounting, in particular, is facing some new changes and challenges that it will continue to adapt to in the near future. That’s because the Financial Accounting Standards Board (FASB)  – itself a private, nonprofit organization that establishes financial accounting standards – just announced a new set of proposals that will make “a major impact” on the financial statements prepared for nonprofits, Accounting Today reported.

The previous model of how nonprofits present their financial statements – and the FAS 116 and 117 standards that govern those statements – had been in place for more than 20 years, according to the FASB, so it was time for an update. In fact, the FASB’s Nonprofit Advisory Committee started looking at the issues involved in nonprofit accounting, in preparation for the new proposals, back in 2009, according to Accounting Today.

While it’s easy to get caught up in numbers and forms, the most basic goal of accounting – nonprofit or otherwise – is to convey financial information. What the FASB’s Nonprofit Advisory Committee learned from its research was that the public’s interests in nonprofit accounting included transparency with regards to what resources nonprofits have available and how they use their resources.

How New Proposals Will Improve Nonprofit Accounting

These new proposals should improve several aspects of nonprofit accounting, according to the FASB. New procedures will include two different measures of financial operating performance that better convey the available amount of money a nonprofit organization brings in and the amount it expends. Adding what the FASB calls “enhanced note disclosures” will make it easier to classify a nonprofit’s net assets and evaluate the management and liquidity of the organization. The requirement that nonprofits report all operating expenses will make understanding and comparing the cost of expenses simpler. Changes to cash flow statements will streamline these reports so that it becomes easier to understand by directly reporting and classifying cash flow.

These new proposed changes will provide additional information for an organization’s stakeholders, including reports about the ways nonprofit organizations use their funds and the costs of occupancy, payroll, maintenance and consultants, Accounting Today reported. Stakeholders will be able to learn more from these financial statements about an organization’s liquidity (the assets it has available) and if the nonprofit’s liquid assets are sufficient to cover operating costs.

For accounting students, especially those with an interest in nonprofit accounting, it’s important to be aware of proposed changes. You’re not out in the accounting world just yet, but you will be soon – and you will need to know about new requirements.