The 7 Things Nonprofits Need to Know about FASB ASU 2016-14
The 7 Things Nonprofits Need to Know about FASB ASU 2016-14 – Compliance and reporting requirements have always been complex and stringent for nonprofit organizations. More change is on the way.
FASB (the Financial Accounting Standards Board) issued ASU 2016-14 in August 2016. The purpose of ASU 2016-14 is to make improvement to the communication of information on financial statements. Soon, your financial reporting must comply with the new guidelines.
Can someone reviewing your organization’s financial statements easily assess your financial health? That’s what ASU 2016-14 looks to accomplish with financial statements clearly communicating:
- Availability of resources to meet cash needs for general expenditures within one year of the date of the statement of financial position
- Liquidity and financial flexibility
- Financial performance during the period
- Service efforts and ability to continue providing services
- Execution of its stewardship responsibilities and other aspects of its management’s performance.
Here are the 7 things nonprofits need to know about FASB ASU 2016-14
1 – Classification of Net Assets
The three net assets classes of unrestricted, temporarily restricted, and permanently restricted are being combined into two classes: 1) net classes without donor restrictions and 2) net assets with donor restrictions. Your reporting on net assets with donor restrictions will require disclosure on things like fund liquidity and availability, when and how funds can be used. Policies for managing funds, year-end balances, and purposes of board designated funds must be disclosed.
2 – Underwater Endowments
Do you have endowments that have seen losses? Under the new guidelines, you are now required to report: 1) current fair value of the fund, 2) original gift amount, and 3) the amount of the deficiency.
3 – Donations of Property and Equipment
The new requirement is that donor restrictions be released when assets (property and equipment) are placed in service rather than releasing donor restrictions over estimated useful life (unless otherwise stipulated by the donor).
4 – Meeting Cash Requirements for the Next Year
You will need to make disclosures that describe the organization’s liquidity and availability of funds. This disclosure addresses how you will meet your cash requirement throughout the next twelve months.
5 – Functional Expense Reporting
You can choose how you disclose functional expenses: on the face of the statement of activities; in a disclosure; or in a separate financial statement. Functional expenses must be reported by their natural expense category (Rent and occupancy; Supplies and travel; Salaries, benefits and taxes, etc.). If you manage numerous programs, opting for a separate financial statement in the report would make sense. And conversely, if you have a single program or activity, you could make this statement a part of your footnotes. In all cases, organization must disclose the method used to allocated costs between programs and support functions.
6 – Cash Flows
You can present operating cash flows using either the direct or indirect method. ASU 2016 – 14 no longer requires showing the indirect reconciliation from the change in net assets when the direct method of reporting is used. By removing this impediment, FASB intends to encourage nonprofits to elect the direct method.
7 – Deadlines are Imminent
You need to start planning for the change – sooner rather than later. The deadline for compliance depends upon your fiscal year:
- January 1, 2018 Start of Fiscal Year – Reports must be compliant January 2019
- July 1, 2018 Start of Fiscal Year – Reports must be compliant July 2019
- September 1, 2018 Start of Fiscal Year – Reports must be compliant September 2019
The first step and the best step is to call Express Information Systems. We understand nonprofits and can help you implement a system that will eliminate low value work, make compliance easy and free you to help guide your organization to mission fulfillment.