If your organization is like most nonprofit organizations, your financial information is subject to multiple levels of review and scrutiny. The list of nonprofit stakeholders is lengthy, including, but not limited to, boards of directors, management, foundations, regulatory agencies, donors, beneficiaries, various financial institutions and peers.
Have you ever asked yourself these questions – What characteristics of our organization are important to each of our stakeholders? Does our financial information adequately present the results of our operations in a manner that is clear and easy to understand?
As your organization continues to face the economic realities of declining revenue streams and increasing costs, consider the following as you prepare your financial information for external review:
- How does your organization measure success?
- Does the financial information provide a barometer against measuring success? Should it?
- Is the information easy to understand?
- Are sources of revenue apparent and indicative of a diverse revenue base, or suggest that diversification is a need?
- What steps has the organization taken to manage costs?
- Do the organization’s financial statements give a clear picture of liquidity and available cash?
In answering these questions, keep in mind that traditional financial statements are not as easy to absorb as graphs, charts and narrative discussion.
The Financial Accounting Standards Board (FASB) agrees with the concerns of the nonprofit community and the users of nonprofit financial statements regarding the inherent difficulty in understanding nonprofit financial statements. In an effort to increase transparency, FASB has added a project to its agenda intended to improve financial reporting of nonprofit organizations. In a press release, FASB Chairman Leslie Seidman said, “existing standards for financial statements of not-for-profit organizations can be updated and improved to provide better information to donors, creditors, and others. FASB members agree it is time to revisit and refresh the not-for-profit financial reporting model, which is nearly two decades old.”
The project will review best practices followed by nonprofit organizations in this area and explain how such communications enhance the understanding of donors, creditors and other stakeholders about the financial health and performance of the organization.
As a firm that works closely with many nonprofit organizations, Schneider Downs will continue to monitor developments on this project with interest. Equally, we’d love to hear from you about your ideas. What updates do you think would make financial statements more useful to your audiences? Please feel free to share your thoughts in the comment box below, or send me an email at firstname.lastname@example.org. More information on the project will be available in coming weeks.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.