2022 Forecast of Nonprofit Accounting
As we head into 2022, the rapid-fire legislative and regulatory changes we have become accustomed to over the past two years are showing no signs of slowing down. Keeping an open dialogue with your CPA will play a key role in creating and implementing a nonprofit accounting strategy that helps you fulfill your mission and maintain compliance.
Collaboration takes on new meaning.
Collaboration software and online meeting platforms have a lot to do with a nonprofit’s ability to grow and evolve. Not only have these tools allowed nonprofit leaders to remain in close contact with their organization’s management, board, and volunteers, but they have also allowed them to keep those real-time conversations going with their organization’s professional advisors.
Since many CPA firms will continue using these tools to perform remote audits, nonprofits should connect with their accounting teams. Testing and auditing procedures, including inventory observations, may need to be conducted remotely, which could change the way your organization prepares for your 2022 engagement.
In addition, these collaboration tools have kept nonprofits and donors connected through virtual and in-person/virtual hybrid fundraising events. As nonprofits host more and more virtual and hybrid events, they also recognize the flexibility these events offer their attendees and the cost benefits and expanded reach for their organizations. In 2022, savvy nonprofits will likely continue to host virtual and hybrid events to maintain health and safety and leverage these benefits.
Operations, programming, and continuous change.
Many nonprofit leaders have come to understand that their organization must change their policies, procedures, operations, and maybe even their programming to overcome recent and future challenges.
Point-of-Light’s Civic Life Today Report found interest in volunteering is booming among Gen X, Millennials, and Gen Z; however, as is the case for all age groups, those respondents expressed an interest in volunteering once the pandemic is over.
Since volunteer and staff reductions and absences may continue into 2022, internal controls will remain of significant importance. With fewer staff members, segregation of duties can be challenging; however, the risk of fraud, human error, and cyber security threats remains, making it a necessary part of risk management.
Going concern, subsequent events, unusual items, and risks and uncertainties.
IUPUI’s Lilly Family School of Philanthropy estimates that total giving will rise 5.7% in 2022. While the forecast for 2022 is looking a little brighter for nonprofits in general, some harder-hit organizations have not fared as well this year. Going concern presumes your organization will continue normal business operations into the future; however, if liquidation is imminent, it affects the basis of accounting and financial statement presentation.
Relief funding and other COVID-19-related effects may warrant additional financial statement and disclosure requirements in 2022. For example, subsequent events, insurance recoveries, contingent losses, asset impairment, fair value measurements, revenue recognition, modifications or extinguishment of liabilities, and other risks and uncertainties may affect your financial statement presentation.
Accounting for gifts-in-kind, leases, and revenue.
The Financial Accounting Standards Board (FASB) has issued two key accounting standards updates (ASUs) that could affect your nonprofit organization in 2022.
ASU 2020-07 requires nonprofit organizations to disclose nonfinancial assets separate from cash contributions on the statement of activities in the organization’s financial statements. Required related disclosures must be made, including:
a breakdown of amounts by asset category
how, why, and when the assets were monetized or used
donor-imposed restrictions
valuation techniques, inputs, and principal market used to determine fair value
The ASU is effective for annual accounting periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. This ASU should be applied retrospectively, and early adoption is permitted.
The FASB also released ASU 2020-05 on June 3, 2020, to give immediate relief for leasing and revenue to certain nonprofit entities as a result of the economic hardships and business disruptions due to the pandemic. The deferrals apply to nonprofit entities that have not yet issued their financial statements as of June 3, 2020.
Ultimately, the optimal strategy for 2022 depends on your nonprofit’s specific circumstances. The nonprofit industry and accounting & auditing teams at L&H are here to help organizations like yours navigate the challenges and uncertainties related to nonprofit accounting that are specific to your industry and your organization. It’s my goal to provide nonprofit services that not only help organizations stay afloat but also help them thrive. Contact me today to get started.
by Wendi Haynes, CPA
Wendi Haynes, CPA, has extensive experience providing accounting, and auditing, including single audits, and tax advisory for nonprofit organizations, including human service organizations, charitable and grant-making institutions, cemeteries, foundations, social clubs, and fraternal organizations. She serves as Livingston & Haynes’ Managing Partner and has been with the firm for over 30 years.