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FASB Issues New Standards for Not-for-Profit Financial Reporting
By: Todd Polyniak, Guest Author, CPA and Partner at SAX
For the first time in more than 20 years, not-for-profit financial reporting will receive a much-needed makeover. On August 18, 2016, the Financial Accounting Standards Board (FASB) issued its new accounting standards for not-for-profit organizations. These rules are designed to help not-for-profits communicate their financial condition more effectively and eliminate unnecessary requirements from the previous standard.
In a world of heightened scrutiny and demand for transparency from stakeholders, donors and regulators, this is welcome news for not-for-profits, who can now tell their whole financial story through a more streamlined and modern reporting model.
According to the FASB, the new rules also make the following improvements:
Reduced costs and complexities in preparing financial statements
More relevant information about resources to simplify financial statements and enhance disclosures
Improved user assessments of liquidity, financial performance, availability of resources to meet cash needs for general expenditures, service efforts and execution of stewardship responsibilities
Generally speaking, the main provisions that amend financial statement requirements now mandate not-for-profit entities to:
Present amounts for two classes of net assets at the end of the period (net assets with donor restrictions and net assets without donor restrictions) rather than the three current classes
Present the amount of change in each of the two net asset categories rather than the current three classes
Continue to present the net amount for operating cash flows using either the direct or the indirect method of reporting (but no longer requires the indirect method)
Provide enhanced disclosures of the information summarized below;
Amounts and purposes of governing board designations and appropriations
Composition of net assets with donor restrictions
How the NFP manages its liquid resources
The availability of financial assets to meet cash needs
Expenses by natural classification and functional classification.
Methods used to allocate costs among programs and support functions
Underwater endowment funds which include required disclosures of:
Policy and actions taken during the period concerning appropriation from underwater endowment funds
The aggregate fair value of such funds
The aggregate of the original gift amounts (or level required by donor or law) to be maintained
The aggregate amount of funds that are underwater (deficiencies) and are to be classified as part of net assets with donor restrictions
Investment return net of internal and external investment expenses (no longer requires disclosure of those netted expenses)
In the absence of specific donor restrictions, use the “placed in service” approach for reporting expirations of gift restrictions
Amendments to the standard will take effect for annual financial statements issued for fiscal years beginning after December 15, 2017 and for interim periods within fiscal years beginning after December 15, 2018. For more information on specific rule changes and the impact on your organization, contact Net at Work or your Account manager and they will connect you with the author of this guest post: Todd Polyniak, CPA at SAX.