Nonprofit Financial Statement Changes

Posted on Wednesday, September 07, 2016

On August 18, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14 which updates Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.  The new update includes the following changes to nonprofit financial statements.

1. The statement of financial position will now present two classes of net assets (net assets with donor restrictions and net assets without donor restrictions) instead of the existing three classes (unrestricted, temporarily restricted and permanently restricted).

2. The statement of activities will now present the amount of the change in each of the two classes of net assets rather than that of the currently required three classes.

3. The statement of cash flows will continue to present the net amount for operating cash flows using either the direct or indirect method of reporting but no longer requires the presentation or disclosure of the indirect method reconciliation if using the direct method.

4. Enhanced disclosures about the amounts and purposes of board designated net assets.

5. Retains current requirements to provide information about the nature and amounts of different types of donor-imposed restrictions, highlighting how those restrictions affect the use of resources, including their liquidity.   

6. Qualitative information that communicates how an NFP manages its liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date.

7. Quantitative information that communicates the availability of an NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date.

8. All nonprofits to provide expenses by natural classification and functional classification in one place.  This can be presented on the face of the statement of activities, as a separate statement, or in the notes to the financial statements.  

9. Methods used to allocate costs among functions.

10. Underwater endowments will now be classified in net assets with donor restrictions instead of the current classification in unrestricted net assets.  Additional disclosures will also be required.

11. All nonprofits to present investment return net of all related external and direct internal expenses and eliminate the currently required disclosure of netted expenses.

12. Eliminates the over-time approach for the expiration of restrictions on capital gifts in favor of the placed-in-service approach, in the absence of explicit donor stipulations.

The updates are effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018.   Application to interim financial statements is permitted but not required in the initial year of application.  Early application of the updates is permitted.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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