Have you been looking to improve the face of your nonprofit organization’s financial statements and enhance footnote disclosures to better communicate financial performance? If so, have you heard about the recent changes to nonprofit reporting? In August of 2016, the Financial Accounting Standards Board, (“FASB”) issued a new accounting standards update (“ASU”) regarding accounting and reporting for nonprofits, known as ASU 2016-14. This ASU marks one of the biggest changes in accounting and reporting for nonprofit organizations.
A summary of the changes included in this update are as follows:
- Net Asset Classification: The new FASB ruling requires that nonprofits report under two net asset classifications in the Statement of Financial Position and Statement of Activities: Unrestricted Net Assets and Donor Restricted Net Assets, rather than three net asset classifications: Unrestricted, Temporarily Restricted, and Permanently Restricted.
- Statement of Cash Flow Preparation: Although both the Direct Method and Indirect Method of presenting the Statement of Cash Flows may still be elected, moving forward, when using the direct method, the presentation or disclosure of the indirect method (reconciliation) is no longer required.
- Enhanced Disclosures: There are a handful ofnewfootnote disclosures or changes to footnote disclosures that are related to a wide array of topics:
a. Self-imposed and donor-imposed restrictions
b. Qualitative and quantitative information about management of liquid resources
c. Expenses detailed out by natural classifications and functional classifications
d. Methods used to allocate costs among programs and support functions
e. Policies and values of underwater endowment funds
- Investment Return: Investment returns are to be reported net of external and direct internal investment expenses. The FASB will no longer require disclosure of those netted expenses.
- Placed-in-Service Approach: The FASB, in the absence of explicit donor stipulations, dictates the use of a placed-in-service approach for reporting expirations of restrictions on gifts of long-lived assets (or cash to acquire long-lived assets). This eliminates the current option to release restrictions over the estimated useful life of the acquired asset.
Nonprofit organizations are required to adopt these changes for fiscal years beginning after December 15, 2017; however, early adoption is permitted and recommended.
For additional support or general questions about transitioning to this new method of Nonprofit financial reporting, feel free to contact Kristi Yanover, Audit Partner, at firstname.lastname@example.org, or any member of our Accounting & Assurance Team; we would be happy to assist you in transitioning your financial statements and related notes in accordance with the new standards.