Mission Matters Insights
New Financial Reporting Standards for Nonprofits: 2017 UpdateJanuary 19, 2017
Nonprofits, are you up to speed on the FASB’s changes to financial reporting? The Board has just released ASU 2016-14, which will change the way your business operates.
Wondering what’s new on the nonprofit financial reporting front? The Financial Accounting Standards Board (FASB) has issued Accounting Standard Update (ASU) 2016-14 to update the current financial statement model. The FASB hopes this will improve information presented in the financial statements and notes about financial performance, liquidity and cash flows.
A quick look at what’s changing
- Disclosures about liquidity- There are new disclosures required to provide qualitative and quantitative information about liquidity.
- Statement of cash flows- On the statement of cash flows, nonprofit organizations currently have the option to use either the direct method or indirect method to present the cash flow statement. Although the direct method is favored by the FASB, current guidance requires the reporting entity must include the indirect reconciliation when the direct method is used. The new ASU eliminates this requirement.
- Net asset classification- The new standard reduces the number of net asset classes from three to two. In addition, additional disclosure is required for board designated funds.
- Investment Returns and Treatment of investment expenses- The ASU stipulates that external and direct internal investment expenses to be netted with investment return in the statement of activities, and eliminates the requirement to disclose these expenses. In addition, the FASB expanded the types of expenses that can be considered investment expenses.
- Classification of expenses- The ASU now requires expenses be presented by both the function and natural class. In addition, the new guidance requires qualitative disclosures about methods used to allocate costs between program and support functions.
Stay tuned for more information on each change in our new series—“New Reporting Standards for Nonprofits: 2017 Update”.
Questions? Contact me or any member of our Not-for-Profit Services Team.