On 8/18, FASB published a massive overhaul to the accounting rules for not-for-profit organizations. The release is ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which you can find here.
Effective date
ASU 16-14 will be effective for fiscal years beginning after December 15, 2017.
Let’s translate that… it will first be effective for calendar year December 31, 2018 financial statements. For NPOs with fiscal year ends, it will be effective for 6/30/19 or 9/30/19.
Since 6/30/16 audits are underway, for a rough ballpark figure three years from now for required implementation.
Early application is permitted.
Really fast intro
Check out the press release here.
For a vague hint of where this is going, consider the revised presentation and disclosures will include
…qualitative and quantitative requirements in the following areas:
- Net Asset Classes
- Investment Return
- Expenses
- Liquidity and Availability of Resources
- Presentation of Operating Cash Flows.
Highlights
For a three page introduction to the new standard, check out FASB’s summary here. Here is my summary of a few highlights:
- Current breakout of net assets into three classes will be reduced to two classes: with and without donor restrictions. The previous temporarily restricted and permanently restricted classes will be combined.
- Underwater portion of donor restricted endowments will be categorized as with donor restrictions.
- Qualitative description how an NFP manages “liquid available resources” in order to meet cash requirements for the next year.
- Quantitative information about the availability of financial assets within one year of the balance sheet date. Financial assets may have limited availability due to their nature, external limits (by donors, laws, contracts), or internal limits (generated by board decisions).
- All NFPs must present expenses in a natural classification and by functional allocation. Previously this was only required by voluntary health and welfare organizations. The information may be presented within the statement of activities, and a separate schedule, or in the notes.
- Enhanced disclosures are required to describe allocation methodology.
- Investment returns will be presented “net of all related external and direct internal expenses.” The previous requirement to disclose the amount of expenses netted against investment income has been removed.
- Either the direct or indirect method for cash flow statement is allowed. If presented on the direct method, the indirect method reconciliation is no longer required.
Other articles
Here are a few of the first discussions I’ve noticed:
If you would like a video summary, FASB has posted an overview: Why a New Not-for-Profit Financial Reporting Standard?
8/18 – Michael Cohn at Accounting Today – FASB Releases Not-for-Profit Accounting Standard – A FASB board member suggested the biggest change is reducing the classes of net assets from three to two.
8/19 – Prof. Brian Mittendorf (@CountingCharity) on Twitter – Check out his twitter feed on 8/19 for a 16 tweet summary of the new standard.
Updates:
8/18 – AICPA – FASB’s New Standard Aims to Improve Not-for-Profit Financial Reporting – Not-for-profit section has a longer summary. Good read.