What You Can Do Now for the New FASB Nonprofit Standard

Posted on Wednesday, November 29, 2017

The new FASB ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities will be required for the year ending December 31, 2018 for calendar year organizations and for fiscal years ending in 2019.  There are significant changes that will occur with the implementation of the new standard for nonprofit organizations. 

To make sure your organization will be in compliance with the new requirements, here are some recommendations of what you can do now to prepare for implementation.

Net asset classifications.  The three existing classes of net assets (unrestricted, temporarily restricted and permanently restricted) will become two classes (net assets without donor restrictions and net assets with donor restrictions).  As a result, the statement of financial position and statement of activities will reflect the two new classes; however, the temporarily and permanently restricted disclosures by time, purpose and endowment currently required will still be required to be disclosed in the footnotes.

Underwater endowments.  Currently endowments that have a fair value that is less than the original gift are classified as unrestricted net assets.  The new ASU requires these underwater endowments to be shown as net assets with donor restrictions (formerly temporarily restricted and permanently restricted).  Additional disclosures will also be required including (1) the original amount of the endowment, (2) the organization’s policy for spending from these funds, and (3) whether the policy was followed.

Board designated net assets.  Additional disclosures will be required for funds designated by the board for specific purposes. 

Placed in service approach.  The option to imply a time restriction and release the restriction over a long-lived asset’s life will not be permitted.

Transparency and utility of liquidity information.  Currently no information is required on an organization’s liquidity.  The new ASU requires both quantitative and qualitative information on how the organization will meet its cash flow needs for operations within one year from the balance sheet date.

Presentation of investment expenses.  External and direct internal investment expenses will be netted against investment income on the face of the statement of activities.  Disclosure of the components of investment expenses will no longer be required.

Expenses classified by function and nature.  An analysis of expenses by both function and natural classification will be required for all nonprofits on a separate statement (statement of functional expenses), on the face of the statement of activities or in the footnotes.  Additional disclosures will also be required for the methodologies used to allocate costs. 

Presentation of cash flow information.  Either the direct or indirect method may be used for the statement of cash flows.  The indirect method reconciliation will no longer be required if the direct method is used.   

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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