By Lila Casper, CPA
Senior, Audit & Assurance Services
ASU 2016-14 is a new Financial Reporting Standard affecting not-for-profit (“NFP”) entities, which is effective for fiscal years beginning after December 15, 2017. In the year of implementation, all prescribed provisions must be applied. Some of the primary changes in NFP financial reporting pertain to net asset presentation, a required liquidity and availability of resources disclosure, and expense reporting.
On the Statement of Financial Position, the minimum required presentation includes presenting net assets under the following two classifications: without donor restrictions and with donor restrictions. An allowable alternative presentation includes additional categories of net asset classifications, which are considered subsets of without donor restrictions and with donor restrictions, and they can include the following: undesignated, operating reserve, board-designated (for specific purpose), time restricted for future periods, purpose restricted, and endowment fund. NFP entities are also required to disclose the timing and nature of restrictions, the composition of net assets with donor restrictions, an analysis by time, purpose, and perpetual restrictions, and board designations.
Board-Designated Net Assets are defined as net assets without donor restrictions subject to self-imposed limits by action of the governing board. NFP entities are required to disclose the nature and amounts of board designations. Amounts may be earmarked for future programs, investment, contingencies, purchase or construction of fixed assets, or other uses. Organizations will need to review their existing policies regarding board designations.
In addition, NFP entities are required to provide qualitative information (in the footnotes to the Financial Statements) on how they manage their liquid available resources as well as their liquidity risk and quantitative information that communicates the availability of their financial assets at the Statement of Financial Position date to meet cash needs for general expenditures within one year. Also note that the availability of a financial asset may be affected by its nature, external limits imposed by donors, laws, and contracts or internal limits imposed by governing board decisions.
The schedule of functional expenses will no longer be an optional supplemental schedule. It is now a required part of the basic financial statements. The new standard also expanded on guidance for allocations of Management and General Expenses.
Sponsel CPA Group has expertise in not-for-profit financial reporting and can go over the new rules with you to find the best options for your organization. If you have any questions please contact Lila Casper at (317) 613-7860 or email firstname.lastname@example.org.