I have been hearing one particular question over and over from my nonprofit clients: “All this talk about convergence of international accounting standards can’t affect our organization, right?” Unfortunately, there is no easy answer to this question, but generally IFRS has and will continue to have an effect on nonprofit organizations.
The standard setting authorities of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Boards (IASB) broadly defined their initial goal of international convergence to be to establish “a single set of high-quality, international standards that companies worldwide would use for both domestic and cross-border financial reporting.” Today, rather than requiring American companies to adopt International Financial Reporting Standards (IFRS), convergence is being accomplished through the issuance of new standards by both the FASB and the IASB to minimize the differences between the two standards.
This is where nonprofits are being affected by the convergence to IFRS. Anyone who has looked at a nonprofit financial statement over the past two years might recognize the term “Fair Value Measurements” in the footnotes. This is just one example of where a joint project between the FASB and IASB has affected the reporting of U.S. nonprofits. On an ongoing basis, U.S. nonprofits can expect to see changes in U.S. GAAP that will impact their reporting requirements for years to come. Ongoing convergence projects include changes in lease accounting, revenue recognition, and in the accounting for financial instruments. A quick review of the proposed pronouncements from these topics will tell you that they will have a broad impact on nonprofit organizations.
While the answer to the opening question isn’t as straightforward as it might seem, it is clear that changes in U.S. GAAP due to convergence are impacting nonprofits.
To learn how these standards could have an impact on your organization, contact Kurt Herdman.
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