Nonprofit Financial Statement Changes Coming
The Financial Accounting Standards Board (FASB) has been working on a project to provide nonprofit financial statement users with more useful information. Phase one of the project was recently completed, and the FASB issued a new accounting standard that details the changes. The standard will be effective for fiscal years beginning after December 15, 2017. Watch for future newsletter articles with all the details. In the meantime, read on for a summary of the changes.
- Net asset classifications are reduced from three (unrestricted, temporarily restricted, and permanently restricted) to two (with donor restrictions and without donor restrictions).
- Investment expenses should be net against investment income (i.e. the option to show investment expense as part of functional expenses is eliminated). The dollar amount of the investment expenses no longer needs to be disclosed.
- Use of the direct method in the statement of cash flows no longer requires reconciliation with the indirect method of calculating cash flows from operating activities.
- Unless donors explicitly instruct otherwise, contributions restricted for the purchase of fixed assets will be released from restriction when the asset is placed in service. The option to release those contributions over the estimated useful life of the asset has been eliminated.
- Amounts by which endowment funds are “underwater” will now be reported in “net assets with restrictions” rather than as unrestricted net assets under the current accounting rules.
- Expenses must be reported by both natural and functional classification in one location (even if the nonprofit is not a voluntary health and welfare organization).
- Qualitative and quantitative disclosures regarding the nonprofit’s liquidity and how liquidity is managed will be required.
- Several enhanced disclosure requirements are also included in the new standard.