By Jim Norton, Senior Technology Consultant at Dean Dorton
“It’s not that hard.”
“It’s not so different from any other kind of accounting.”
“I’ve never worked in a nonprofit, but I have 20 years of accounting experience, so how hard can it be?”
Having dedicated much of my professional life and passion to specializing in the nonprofit space, these attitudes were prevalent in more than a few cases. Each time is as frustrating as the next. Accounting and Finance leaders in nonprofit organizations face these comments and attitudes every day from all different stakeholders. I’m here to remind you of something important: you are not crazy.
The financial requirements of a nonprofit organization have arguably never been more complex than they are today, and the future of the industry is only headed toward increasingly rigorous and granular reporting requirements. Already, FASB issued Accounting Standards Update 2016-14, 2018-08, and ASC 606. Surprise – all these standards can and probably DO impact your nonprofit organization!
It’s feasible that many of you in the nonprofit world have just wrapped up or are about to wrap up your first fiscal year in which these new standards applied. These are the first major changes to nonprofit accounting standards in decades and they have transformed the way we have to report our financials.
Transactions that occur within a nonprofit entity cover such a wide range that these new standards could apply to different transactions all during the same period. Where else but in a nonprofit environment will you constantly have to ask yourself “is this a contribution transaction or an exchange transaction?” Where else but in a nonprofit will you find yourself having to break up and track the restrictions on funds that have been given to you on the face of your statement of activities?
Many people think of nonprofits strictly in the “traditional” sense – organizations that receive contributions and grants. These types of organizations do represent a good chunk of the nonprofit community and their challenges have certainly increased with the new accounting standards. You know those grants you’ve been reporting on your Balance Sheet as deferred revenue for the past umpteen years?
Under the new standards, it’s possible that those same grants are now treated as if they are essentially contributions and you have to account for them on the statement of activities with release of restriction as appropriate. How about the tickets you’ve been selling to your annual gala? Have you been appropriately bifurcating your revenue to separately report the contribution portion from the portion which represents an exchange transaction?
However, nonprofit financial activities don’t stop in contribution and grant land. What about Chambers of Commerce and Membership Associations? These are nonprofits, too! They may or may not receive contributions, but they charge dues. Many of these organizations also sell their members a “package” for the entire year, made up of various event sponsorships and other benefits. Under ASC 606, that’s what we call a “Multi-Element Arrangement.” There are complex rules about how we have to account for the revenue (and the expenses associated with that revenue) in those packages.
You’ve read this right – it means that as a Nonprofit Finance and Accounting professional, you need to know multiple sets of accounting standards, determine which set applies to your transaction, and then apply it correctly! Does it still sound “not so hard” or “not so different from any other kind of accounting?”
Keep reading the full article to learn about a nonprofit financial management solution that brings a greater level of automation to handling a diverse portfolio of transaction types under the same roof.
YNPN is pleased to have Jim Norton, Senior Technology Consultant of Dean Dorton as this month's blog contributor. Dean Dorton is a Platinum Sponsor for the 2019 #nonprofitSTRONG Summit.