by Lauren Groff, CPA | February 01, 2017

Changes in accounting standards can impact how associations manage or track data, so it’s crucial that association leaders stay up-to-date on new rules, and work with their auditors to proactively prepare and comply.

One new standard (the Financial Accounting Standards Board’s Accounting Standards Update 2016-14) effectively overhauls the financial-statement reporting model for not-for-profit associations. Designed to simplify how not-for-profit organizations like associations classify net assets and improve the availability of information about an organization’s liquidity, financial performance, expenses and cash flow, the standard seeks to make not-for-profit financial reporting more transparent and easier to compare from organization to organization. Though the rule doesn’t go into effect until 2018, association financial leaders should begin working now to gain a comprehensive understanding of the new standard.

New disclosure requirements for associations. One of the most significant changes in the new standard for associations is the requirement to report individual expenses by both function and nature. Today, associations often present total expenses by function (e.g., programs, member development or management). But they will now need to do this with individual natural categories of expenses—such as rent and salaries—and explain the basis for the allocations in the footnotes of their financial statements. This will require associations to develop thorough processes to capture the information necessary.

The standard also calls for enhanced disclosure of board designated net assets. Currently, when an association’s board sets aside money to make capital improvements, the organization only has to report the total amount of assets allocated. The new standard requires associations to disclose these self-imposed restrictions in more detail in footnotes and on the face of the statement of financial position.

Further, an association will be required to provide qualitative and quantitative information in the footnotes of its financial statements that details how it plans to manage its liquid resources to meet its cash needs for general expenditures in the coming year. Another important change is that an association will need to report investment returns net of external and internal expenses related to investments (for example, salaries of employees who manage the portfolio).

Although complying will require organizations to alter internal processes to improve how they collect data and information, the new standard can help associations gain a better understanding of how they manage financial resources. It can also enable them to offer a clearer financial picture to their members.

Act quickly to comply. Getting to that point and realizing the benefits of the standard will be a challenge. While some associations have made strides toward meeting FASB’s requirements, many continue to put off action. This is a mistake that can result in inefficiencies and delays when it comes to completing and issuing the first financial statements under the new standard.

To effectively comply, association financial leaders need to start by working closely with their auditors to understand the various elements of the new standard and assess how they report. After this preparatory work, an association will be in a position to create processes that enable it to capture the information it needs to report accurately and efficiently. It should do test runs as it implements the new processes to see what works and what doesn’t in time to comply with the standard. And once an association’s 2017 financial statements are complete, it should consider recasting these statements to comply with the new standard to ensure it is ready for implementation in 2018.

The associations that work closely with their auditors and prepare early will be the ones that gain a more comprehensive understanding of their finances, offer increased transparency to members and enjoy a seamless transition to the new standard.