It is no secret that non-profit financial reporting is always in the spotlight. This means you should have continuous communication with your non-profit clients’ management and financial staff regarding reporting, records and changes.
Non-profits are still a business.
While the nature of non-profits is unique, they are still in the business of creating income (in the form of donations received) and answering to invested parties. The IRS is not more lenient on non-profit reporting accuracy because of the nature of their charitable work. Just as you would tailor accounting requirements for other businesses be sure to do this for non-profits by being knowledgeable about specifics related to contributions, in-kind giving, net assets, event funding, expense classifications and more. Use the non-profit organization’s financial staff to their fullest potential as you adjust to future changes to financial reporting statements in the non-profit sector.
Advise clients to have a reserve fund to provide stability in uncertain times.
While it is always good for businesses to have some operating funds in reserve in case of unexpected hardship, this is especially important for non-profits who may not have income to rely on during a financial set back. This reserve fund should be clearly noted in the financial reports of the non-profit.
Not all income is tax exempt.
According to the National Council of Nonprofits, taxation can occur under IRS rules for unrelated business income taxation (UBIT). When tax-exempt charitable nonprofits earn income through an activity that is unrelated to their exempt purposes (such as activity that is commercial in nature, like sales of goods) and the activity is “regularly carried on,” the revenue from the activity may be taxable income. In addition, income generated from advertising and corporate sponsorships is may also be considered “unrelated” so caution is advised in this area.
Financial Accounting Standards Board Financial Statements of Not-for-Profit Entities project changes.
This project’s objectives are to reexamine the current standards for financial statement presentation by not-for-profit entities and focus on improving the net asset classification requirements, as well as the information provided about liquidity, financial performance and cash flows.
This project is undergoing, but the Current Technical Plan details expected release dates of exposure documents and final standards. It is vital that as a tax professional you are up to date not only about the changes this project will enact but also how these changes will affect your non-profit clients.
In order to best serve your non-profit clients you need to know what distinguishes their accounting from the commercial sector in detail in order to prepare for any changes that may come. For more information on the current professional standards of not-for-profit financial reporting and their future direction, sign up for Surgent’s Not-for-Profit Financial Reporting for Today and Tomorrow (NPFR) webinar.