Christine Umbrell is a freelance writer based in Herndon, Virginia.
New guidelines aimed at simplifying nonprofit financial statements might require some decoding for association boards. Here's what you need to know.
In August, the Financial Accounting Standards Board set forth new guidelines intended to improve and simplify how nonprofits present their financial statements, under what's known as the Accounting Standards Update (ASU). Though associations have until 2018 to implement the new standards, association staff should start working now to determine how the changes will affect their financial statements, and how to communicate the changes to their boards.
"Boards rely on the associations' financial statements and absolutely need to be a part of the process for managing implementation," says Lee Klumpp, CPA, national assurance director in BDO's nonprofit and higher education practice.
"Currently, most trade associations inform boards of their financial position and results via internal financial statements, but it really depends on how the committees and boards operate,"Klumpp says. Annual financial statements are critical association documents because they support the budgetary information association staff share with board members all year long. "External audited financial statements tell the board at the end of the year whether the information the staff has been presenting is complete and accurate," he says.
Consider these suggestions for introducing the new ASU requirements to your association's board members:
Read and digest the standard. First, make sure the financial experts on your staff, such as the CFO, controller, or financial executives, read the entire standard and understand its impact, Klumpp says.
Boards rely on the associations' financial statements and absolutely need to be a part of the process for managing implementation.—Lee Klumpp, CPA, BDO
Communicate the changes to your board members. "Educate the board on the changes, and how the changes will affect your financial statements," Klumpp says, adding that you may need to "sell" board members on why the changes are necessary. He also suggests that the CFO, controller, or financial executive take the lead in conveying the information—with assistance from the association's auditors.
Provide a mock-up of the changes. Another recommendation would be to take last year's statements and mark them up to match the requirements in the new standards, Klumpp says. Then, describe to your board members which parts of the ASU might have the biggest impact on your financial statements—for example, the following changes:
Following these steps will make the transition to the ASU easier for both association staff and the board of directors. Throughout your communications, "realize you're talking to people who are not primarily financial experts, but who are business people," so don't get too technical in your discussions, Klumpp says. And remember to present the changes in a positive light. "Most people actually think the changes are good," he says.