After years of discussion and debate the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-14 Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities in August 2016. The new standard represents Phase 1 of the project, with no definite time frame for Phase 2. Here is your summary guide to the new standard.
Why: Simplify net asset classifications and provide improved information about a non-profits liquidity, financial performance, and cash flows.
Who: All not-for-profits and users of their financial statements.
- 2 classes of net assets:
- net assets with donor restrictions and net assets without donor restrictions
- statement of activities will follow same classification
- Cash flows: can present direct or indirect, no reconciliation required if direct method is used
- Enhanced disclosures relating to the following areas:
- board designated net assets
- composition of net assets with donor restrictions
- qualitative and quantitative information about liquidity
- statement of functional expenses and information about allocation method
- underwater endowment fund
- Report investment return net of external and direct internal investment expenses. Entities don’t need to report the amount of netted expenses.
- Use the “placed in service” approach for releasing restrictions on assets used to acquire or construct long-lived assets. This eliminates the option to release over the estimated life of asset.
Annual financials for fiscal years beginning after December 15, 2017 and interim periods within fiscal years beginning after December 15, 2018
- Early adoption is permitted.
- Retrospective application is required.
Find the full standard here.
For more information about applying the new nonprofit standards, contact Christine Arthur via email.