Not-for-Profit Entities – Financial Reporting Changes Coming

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which is in effect for fiscal years beginning after December 15, 2017.

So what is the bottom line? What will change?

  1. Net Assets. Financial statements will now only include two classes of net assets: “net assets with donor restrictions” and “net assets without donor restrictions.” This is a change from the three categories of net assets including unrestricted, temporarily restricted, and permanently restricted net assets.
  2. Statement of Cash Flows. There is no longer a requirement to include a reconciliation to the indirect method if reporting on the direct method. Depending on your designated method, this may not apply to your organization.
  3. Financial statement disclosures. The update requires financial statement disclosure clarification, as follows:
    • Amounts and purposes of resources with self-imposed limits of resources without donor-imposed restrictions. For instance, assets set aside by the governing board, not designated by specific donors.
    • Composition and resulting impact of restrictions of net assets with donor restrictions.
    • Qualitative and quantitative information about asset management and the ability to meet cash needs within a year of the balance sheet date.
    • Expenses by natural and functional classification.
    • Methods used to allocate costs for program and support functions.
    • Any underwater endowment funds, including certain applicable disclosures.
  4. Investment return. Investment return should be reported net of external and direct internal investment expenses. In addition, there is an elimination of related disclosure previously required.
  5. Reporting expirations of restrictions on gifts. When there are not explicit donor stipulations, there is a change to the appropriate classification to expiration of gifts that are to be used to acquire or construct long-lived assets. This is primarily as a result of the change in net asset classes.

The changes initiated in the update are required to be applied on a retrospective basis in the initial year, with some exceptions for comparative financial statements regarding certain disclosures.

We encourage you to begin thinking through these changes and how they will impact your financial statements now—also realize that your governing board will have questions about the changes in the presentation.

Smoak, Davis & Nixon LLP (“SDN”) is working closely with our clients to implement the changes discussed in this posting and we have extensive experience in serving not for profit entities in the greater Jacksonville, Florida area.

SDN is a full service CPA firm, providing a wide range of services to our clients in the areas of attestations (audit, reviews, compilations, agreed up procedures), accounting service, tax compliance and planning, investment advisory and financial planning services, computer consulting services.

 

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