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Keep Financial Statements Simple

While it’s challenging to stay current with constantly changing compliance requirements for non-profits, and the increasingly complex accounting standards, the reporting requirements are slightly relaxed compared to other entities. The Financial Accounting Standards Board (FASB) has an Accounting Standards Codification (ASC) with requirements specific to non-profit financial statement presentation (ASC 958-205).

Nonetheless, there is still an incredible amount of reporting required by non-profits. How should non-profits provide the information required while simultaneously keeping them readable and brief?

 

When audited financial statements are presented to a non-profit’s Board, there frequently is confusion. This is because audited statements usually are presented under U.S. Generally Accepted Accounting Principles (GAAP), while internal numbers are recorded using other methods. All year, internal results are presented to the Board with certain expectations, which are contradicted at year end when accrual, depreciation, and other GAAP adjustments are made to the books. To avoid this confusion – and not keep up with two sets of financial records - keep the accounting and reporting uniform.

In an effort to be transparent, non-profits end up disclosing too much information in the financial statements. A sixty page financial package, redundant disclosures, and pages of numbers that are ten columns wide and require a magnifying glass to read are just too much. Make it a goal for 2015 to take out items that are not needed. Below are a few suggestions that will simplify financial statements:

  • First, go through financial statement line items and consolidate immaterial items. Generally, if it’s less than one percent of the total, combine all items into one miscellaneous.
  • Second, look at what is being disclosed. If not required, is there meaning to the users of the statements? Include information donors and lenders want and remove irrelevant information, particularly if it isn’t applicable to the current reporting period. Also remember to avoid the use of jargon and remove any duplicate information from the financial statements.
  • Third, compare financial statements to similar organizations. Find a non-profit with similar operations and see if their presentation is in a better format or more concise.

While reporting requirements are not as extensive for non-profits, they are still complex. Consult your CPA, the FASB ASC, and the American Institute of CPA’s Audit and Accounting Guide for Non-profits to ensure you are in line with the requirements. The bottom line: keep it simple!

Garner BoBo Garner, CPA, MBA, is an Audit Supervisor at PBMares, LLP and is a member of the firm’s Not-for-Profit team. PBMares is a regional accounting and business consulting firm serving clients throughout the Mid-Atlantic. For more information, please contact the author at bgarner@pbmares.com or visit: www.pbmares.com.

Topics: Nonprofit Leadership and Practice