Posted By Jonathan D. Moll, CPA
The Blue Ribbon Panel on Standard Setting for Private Companies – I know, it’s a mouthful. And unless you’re in the small (but extremely gifted) portion of the population that perceives all of life’s moments as a series of debits and credits, I probably lost you after “Standard”. But this is kind of a big deal, and we should at least be keeping an eye on the big issues.
The Blue Ribbon Panel (BRP) includes representation from all of the main players in the accounting profession (AICPA, FAF, FASB, and NASBA). The BRP members believe the current accounting standards setting system does not sufficiently understand the information that users of private company (including nonprofits) financial statements consider to be decision-useful and how they differ from the users of public company financial statements. The panel weighs the costs and benefits of establishing separate accounting principles (or identifying exceptions to the current principles) for private company financial reporting.
So how could this affect the nonprofit sector? The potential of not quickly reacting to changes in accounting standards could have a negative impact on a year-end audit, and as a result, a negative impact on potential funding. Nonprofits have probably felt the effects of changes in auditing standards during the past 5 years more than other companies. In situations where nonprofits had previously relied on the auditors to “clean up” while performing the audit, they were now expected to provide the auditors with a clean set of financial statements prior to the audit or fear having a control deficiency reported in a management letter. The fear of not knowing how government agencies or donors would react to control deficiencies reported in management letters changed the emphasis that nonprofits placed on reporting financial information in accordance with standards. After seeing the initial spike in reported control deficiencies resulting from these new audit standards, there was a tremendous effort from the financial offices within the nonprofit industry to gain a better understanding of accounting principles: As a result, financial reporting coming out of organizations within the industry was more accurate, and financial professionals within the industry were more aware of accounting standards than ever before. Which is why a change in those standards is a concern. In an environment where funding from government agencies and donors is more difficult to secure, you don’t want a management letter comment to give a donor a reason to bypass your organization.
The BRP issued their report last week, and if you’re interested in a 70 page thriller that will keep you on the edge of your seat, I suggest you check it out. Click here for the Full Report!
At the least, I urge all nonprofits to ask their CPAs or finance professionals to keep them informed of the developments and to be prepared to react to change, if needed.