As an auditor of nonprofit organizations both large and small, I am often struck at how challenging it is to truly understand an organization’s mission and operations just from reading its financial statements. Nonprofit organizations typically report to a wide array of stakeholders, from lenders and donors, to business partners, and the general public at large. Certainly, most nonprofit organizations do a fantastic job at spreading their message and purpose through their websites, through their leadership, and through other various forms of communication, but how well can stakeholders understand that message just from reading the non-profit’s financial statements?
This is a question that the FASB has pushed its Not-for-Profit Advisory Committee to tackle in a recent board meeting that was held on November 9, 2011. The FASB created a standard-setting project that will re-examine current standards for not-for-profit financial statement presentation, as well as a research project that will study communications other than financial statements that not-for-profit entities use to describe their financial position.
The standard-setting project will focus on improving net asset classification requirements and information provided in financial statements and related disclosures on liquidity, financial performance and cash flow. The research project will focus on how other communications by nonprofit organizations improve various stakeholder (e.g. donors, creditors, volunteers, etc.) understanding of the financial health of an organization.
Ultimately, this project will likely lead to more transparency within financial statements, and various stakeholders will become better informed about an organization’s financial health, something we all can hopefully agree is good for nonprofit organizations.
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