December 18, 2018
In August of 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14 Not-for-Profit Entities (Topic 958). This is applicable to most non-profit organizations. This standard makes some significant changes to current practice and is effective for fiscal years beginning after December 15, 2017.
How does this affect my organization?
Well, in short, it means that this standard will need to be applied for your calendar 2018 financial statements. There are several provisions in the standard, but here are the main things you need to know:
- Net asset categories have been streamlined into two. The new categories are net assets without donor restrictions (formerly “unrestricted net assets”) and net assets with donor restrictions (formerly split into “temporarily restricted net assets” and “permanently restricted net assets”.) While these are combined on the balance sheet, there are still required disclosures about the composition of net assets with donor restrictions.
- Expenses need to be presented both by nature and by function. Some organizations already do this, but now it is required for all not-for-profit entities. This can be accomplished through a statement of functional expenses, on the face of the statement of activities, or in the footnotes. If you’re already presenting a statement of functional expenses, this wouldn’t require a lot of work on your part. If you don’t yet do so, you’ll need to think through how joint costs are allocated between program services, MG&A, and fundraising.
- New disclosures about liquidity are required. ASU 2016-14 requires disclosure of both qualitative and quantitative information about the availability of resources to meet cash needs for general expenditures within one year of the balance sheet date. Some of this is accomplished through the use of a classified balance sheet, but there are some additional disclosures still needed in the notes.
In a nutshell, you probably won’t need to change a lot of your daily processes, but the way certain information is reported will need to be updated. Here’s a link to the Reimer, McGuinness & Associates presentation discussing this new standard in more detail. Also, here is an implementation guide from the AICPA. If you would like further particulars on the new standard, please contact Max Dunlap firstname.lastname@example.org Bree Brown email@example.com or Gaurav Masand firstname.lastname@example.org, and we will be happy to discuss it with you!