New NFP Financial Statement Standard
The FASB recently issued ASU 2016-14 to improve the presentation of financial statements of non-profit organizations. This is the first major change to the non-profit financial statement model in over 20 years. Major provisions include the following:
Net asset classes – the ASU replaces the current presentation of three classes of net assets (unrestricted, temporarily restricted and permanently restricted) with two classes of net assets – net assets WITH donor restrictions and net assets WITHOUT donor restrictions. The new standard retains the current requirements to provide information about the nature and amounts of different types of donor-imposed restrictions and the need to highlight how these restrictions affect the use of the resources and their impact on liquidity.
Investment return – the ASU requires investment return to be presented net of all related external and direct internal expenses. It removes the current requirement to disclose the gross investment income and expense.
Expenses – under current standards, non-profit organizations must present expenses by function, but the ASU introduces a requirement to present expenses by nature and function, as well as an analysis of these expenses to help users assess how a non-profit uses its resources. This analysis should be supplemented with enhanced disclosures about the methods used to allocate costs among the functions.
Presentation of operating cash flows – the ASU maintains the option for non-profits to present their statement of cash flows using either the direct or indirect method of reporting. If an organization chooses to use the direct method, the reconciliation of changes in net assets to cash provided by (used in) operating activities is no longer required.
Liquidity and availability of resources – the ASU requires specific disclosures including: 1) qualitative information on how a non-profit manages its liquid resources available to meet cash needs for general expenditures within 1 year of the statement of financial position date and 2) quantitative information that communicates the availability of financial assets at the statement of financial position date to meet cash needs for general expenditures within 1 year of the statement of financial position date.
ASU 2016-14 becomes effective for fiscal years beginning after December 15, 2017. Early adoption is permitted.
For more info on this topic, contact Nancy DiSalvo at 407-998-9000 ext. 205 or firstname.lastname@example.org