Nonprofit Resources


FASB Issues ASU on Financial Statements for Not-for-Profit Entities

The Financial Accounting Standards Board (FASB) today issued Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. This completes Phase 1 of the most significant project addressing not-for-profit (NFP) financial reporting since the 1993 issuance of FASB Statement of Financial Accounting Standards Nos. 116 and 117.

The key requirements of the new ASU are:

Net Assets

  • Required to be reported in two categories, net assets with donor restrictions and net assets without donor restrictions, replacing the current unrestricted, temporarily restricted, and permanently restricted categories
  • Permitted to be disaggregated further
  • Continued requirement to disclose the nature and amount of donor restrictions such as time, purpose, and perpetuity
  • New disclosure requirement to communicate the amount, purpose, and type of board designations
  • Absent explicit restrictions, net assets with donor restrictions that are for the acquisition or construction of long-lived assets will be required to be released when the asset is placed in service, eliminating the alternative of recognizing the expiration of donor restrictions over time

“Underwater” Endowments

  • Will now be included in net assets with donor restrictions rather than in net assets without donor restrictions
  • In addition to aggregate amounts by which funds are underwater (current GAAP), new required disclosure of the aggregate of original gift amounts (or level required by donor or law), fair value, and any governing board policy, or actions taken, concerning appropriation from such funds

Cash Flow Statement

  • NFPs will be allowed to choose between the direct method and the indirect method in presenting operating cash flows
  • If the direct method is presented, an indirect reconciliation is no longer required

Liquidity and Availability of Resources

  • Required footnote disclosure of qualitative information on how an NFP manages its liquid available resources and its liquidity risk
  • Required quantitative disclosure on the face of the financial statements and/or in the footnotes communicating the availability of an NFP’s financial assets at the statement of financial position date to meet cash needs for general expenditures within one year
  • Examples illustrating different ways entities might report such information have been included in the ASU

Expense Reporting

  • Required reporting of expenses by function and by natural classification, either on the face of the financial statements or in the footnotes
  • Required qualitative disclosures about methods used to allocate costs among program and support functions
  • Enhanced guidance provided related to allocations from management and general expenses

Investment Return

  • Required to be reported net of external and direct internal investment expenses (implementation guidance is provided to illustrate activities which constitute direct internal investing activities)
  • Permitted but no longer required to disclose any investment expenses that are netted against investment return
  • Investment return components are no longer required to be disaggregated in the endowment net asset rollforward
  • NFPs are precluded from including external and direct internal investment expenses that have been netted against investment return in the functional expense analysis

Disclosures about Operating Measures by those NFPs that Choose to Present Such a Measure

  • To the extent an operating measure is affected by internal board designations, appropriations, and similar actions, NFPs choosing to present an operating measure would be required to disaggregate and describe by type these internal transfers, either on the face of the financial statements or in the notes
  • Examples illustrating different ways entities might report such information are included in the ASU

With limited exceptions for certain disclosures, the amendments are required to be applied on a retrospective basis for all years reported. Amendments will be effective for annual financial statements for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted.

Concurrent with the issuance of the standard, FASB issued an In Focus summary, a FASB: Understanding Costs and Benefits document, and a video entitled Why a New Not-for-Profit Financial Reporting Standard?

Phase 2 of FASB’s NFP Entity Financial Statement project is expected to address intermediate operating measures based on mission and availability, presentation of internal transfers on the statement of activities, and alignment of the statement of cash flows with the statement of activities. In addition, the Board is considering whether to address segment reporting for business-oriented health care and other “business-like” NFPs in conjunction with this project, or as a separate project.

Stay tuned for future CapinCrouse alerts, which will include in-depth information and implementation guidance.

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