FASB announced changes to Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. This landmark set of guidelines is the first update since 1993 and will change how many nonprofits report their numbers.
Summary of the New Guidelines
The new guidelines call for the following changes:
* Reducing the net asset classifications from three to two, net assets with donor restrictions and net assets without donor restrictions;
* Underwater amounts of donor-restricted endowment funds in net assets with donor restrictions are now required to be reported;
* Enhanced disclosures about underwater endowments are also required;
* Preparers can now choose between the direct method and indirect method for presenting operating cash flows;
* The requirement to reconcile the direct method with the indirect method is now waived;
* Requires a not-for-profit to provide in the notes qualitative information on how it manages its liquid available resources and liquidity risks;
* Requires reporting of expenses by function and nature, as well as an analysis of expenses by both function and nature.
The new standards take effect for fiscal years beginning December 15, 2017 and for interim fiscal years after December 15, 2018.
Enhanced Clarity for Donors, Members, and the Public
The impetus behind the changes is twofold. First, FASB sought to update the rules after a long period of consistency. The last update occurred in 1993, and an update was thought long overdue. With the changing nature of nonprofit organizations, donations, and information access by the public, new guidelines were thought necessary for enhanced clarity and confidence in the financial management of nonprofit finances.
The rules also seek to simplify financial reporting for nonprofits. FASB has no wish to complicate reporting for anyone, and the new guidelines, once understood and implemented, will likely make financial reporting easier for nonprofits.
Making the Switch Easier on Your Organization
How the changes may or may not impact your organization depends greatly on how your accounts are currently kept. For those who need to adjust their accounting methods, now is the time to begin planning to meet the compliance deadline of December 2017.
Reducing net asset classifications should not be too difficult for most nonprofits. Many already used two net asset classifications, and the former classifications can be rolled into three without too much difficult by most.
If you need assistance making these changes, Welter Consulting can help. We bridge people and technology together for effective solutions for nonprofit organizations. Your accounting software is an important component of the changeover from the older 1993 regulations to the new rollout. We can help you with the change and more.
Please contact Welter Consulting at 206-605-3113.
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