FASB ASU 2016-14: Net Asset Classification Information
One of the most visible changes from ASU 2016-14 is the reporting and disclosures of net assets. The ASU will require nonprofits to report net assets in two categories: net assets with donor restrictions and net assets without donor restrictions. This will replace the current three categories: unrestricted, temporarily restricted, and permanently restricted.
The main reason for reducing the number of categories of net assets that must be reported on the face of financial statements, especially the statement of activities, is to help reduce complexity, increase understandability, and enable greater use of comparative financial statements that can provide readers with information useful in identifying and assessing key trends of the organization.
The areas of the financial statement preparation that will be affected by this change are:
- Statement of financial position
- Statement of activities
- Notes to the financial statements
Since there are a number of areas affecting the financial statements, we recommend you ask a few important questions.
- Has your organization updated the statement of financial position and statement of activities to change the net asset categories from temporarily restricted net assets and permanently restricted net assets to the updated terms, net assets with donor restrictions and net assets without donor restrictions?
- Has your organization reviewed the notes to the financial statements replacing the terms temporarily restricted and permanently restricted net assets with net assets with donor restrictions and net assets without donor restrictions?
In addition, a nonprofit has the option to further disaggregate the two net asset categories in its financial statements. For example, a nonprofit may decide to disaggregate net assets with donor restrictions between those expected to be maintained in perpetuity and those expected to be spent over time or for a particular purpose. However, amounts for each of the two categories of net assets and the total of net assets must be reported in a statement of financial position.
The ASU will also require enhanced disclosures about the amounts and purposes of the governing board’s designations, appropriations, and similar actions that result in self-imposed restrictions as of the end of the period. In addition, the placed-in-service approach will be required when releasing restrictions related to long-lived assets. The option to imply a time restriction and release the restriction over an asset’s useful life will no longer be permitted unless it is explicitly stated by the donor.
Please contact us with questions or to discuss how we can help your organization.