Mission Matters Insights
The long-awaited FASB NFP Accounting Standard Update is HereSeptember 09, 2016
Nonprofits, you’ll want to take heed of the recently released accounting standard update for tax exempt organizations.
FASB has finally released the accounting standard update for tax exempt organizations. The current accounting and reporting for non-profits has been around for 20 plus years, and the new standards simplify and improve NFP reporting. The new standard should improve the current presentation and provide more useful information to users of non-profit financial statements.
The key areas that have been addressed under the new standard are:
- Net asset classification
- Presentation of expenses
- Composition of investment return
- New disclosures about liquidity
- Operating cash flows presentation
Clearly the most note-worthy is the change to the net asset classification
The standard changes the current unrestricted, temporarily restricted and permanently restricted net asset presentation to two classifications: net assets with donor restrictions and net assets without donor restrictions. In addition, the standard requires any underwater donor restricted endowment funds to be maintained within the donor-restricted classification as opposed to the current presentation, which is within unrestricted net assets. The presentation of expenses change under the new standard will require non-profits to provide expenses both by natural classification and function, along with disclosure supporting the allocation of costs among program expense, general and administrative and fundraising (the Functional Expenses).
The new standard will also require what expenses should be netted against investment return to provide consistency of reporting by non-profit organizations.
As for new disclosures about liquidity, the new standard will require non-profits to disclose qualitative and quantitative information about their resources available to meet cash needs for general operations within one year of the balance sheet date.
The new standard will not require presentation under the indirect method on the statement of cash flows if using the direct method.
Finally, when are all these changes and updates effective?
The Accounting Standards Update (ASU 2016-14) is effective for annual financial statements for fiscal years beginning after December 15, 2017, so implementation is required as of December 31, 2018, for December year-ends and as of June 30, 2019, for June fiscal year-ends. Early application is permitted under the new standard, and the changes in this Update should be applied retrospectively, however, if presenting comparative financial statements, an NFP has the option to omit the new required information for any periods presented before the period of adoption.
Our Not-for-Profit Services Group can help your organization better understand how these changes will affect business.