Posted .

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.

What:

  • 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.

When:

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.