By: Margaret Karren

The Financial Accounting Standards Board (FASB) released an Accounting Standards Update (ASU) with the goal of simplifying and improving the not-for-profit reporting of net asset classifications, liquidity information, financial performance and cash flows.

Net Asset Classes:

  • Revised net asset classifications to two classes, net assets with donor restrictions and net assets without donor restrictions
  • Enhanced disclosures for board designated net assets and net assets with donor restrictions
  • Updated accounting and disclosure requirements for underwater endowment funds

Investment Return:

  • Net presentation of investment expenses against investment return on the statement of activities, and elimination of the requirement to disclose investment expenses that have been netted

Expenses:

  • Requirement to present expenses by nature as well as function, including an analysis of expenses showing the relationship between functional and natural classification for all expenses

Liquidity and Availability of Resources:

  • Qualitative disclosures on how a not-for-profit manages its available liquid resources
  • Quantitative disclosures that communicate the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date

Statement of Cash Flows:

  • Free choice between direct and indirect methods of reporting operating cash flows, presentation of the indirect reconciliation no longer required in using the direct method

The standard is effective 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.  Early application is permitted.

What should you do now?  

  • The FASB is hosting a live webcast on September 13, 2016 from 10-11:15 PDT to discuss the standard and answer viewers questions
  • Review your donor restricted accounts and ensure that you have an adequate system in place to disclose purpose and timing information for these net assets
  • Take a fresh look at your functional expenses and your allocations, too many organizations have taken a same as last year approach (SALY), this is a good opportunity to ensure you are spreading your expenses to the proper categories
  • Review which cash flow method of reporting is best for the users of your financial statements. Set up your accounting software to produce the cash flow statements under that method

**Click here to register for the FASB's webcast that explains the new standard.

Stay tuned, Green Hasson Janks will be blogging and discussing these changes at our quarterly workshops.

 

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Founded in 1953, Green Hasson Janks is a Los Angeles-based accounting firm that specializes in nonprofit, food and beverage, entertainment and media and health and wellness companies. Recipient of the Los Angeles Chamber of Commerce 2018 Employee Champion For Life Work Harmony Award and named a…Learn More