Not-For-Profit Accounting Update

With the August 2016 release of ASU No. 2016-14, the FASB has made the first major changes to not-for-profit reporting in more than twenty years. The changes are intended to add transparency to financial reporting and provide enhanced information concerning liquidity and access to resources.

ASU No. 2016-14 changes current treatment by requiring: 1) the categorization of an organization's net assets into two categories (restricted and unrestricted) as opposed to the three categories currently used (permanently restricted, temporarily restricted, and unrestricted); 2) the statement of activities report financial results for the two classes of net assets; 3) all not-for-profits to report expenses by functions and natural categories; 4) most fixed assets acquired with restricted assets be transferred to unrestricted assets when placed in service; 5) several enhanced disclosures regarding designation, restrictions, access to assets, liquidity, cost allocations, and underwater endowments; and 6) the indirect method reconciliation of cash flows be eliminated.
While the published standard makes significant changes, it is a scaled back version of the original proposal. The original proposal’s more controversial provisions — drawing up a different statement of cash flows, requiring the direct method of reporting cash flows, and requiring groups to come up with a uniform performance measure — were shifted into "phase two". The board has not said when it will address these topics.

For our clients, the new standard is effective for calendar year 2018 entities and for fiscal year-end entities with years ending in 2019. Early adoption is permitted.