Are you ready for the significant changes coming to your organization’s financial statements? Recently, the Financial Accounting Standards Board issued a new Accounting Standard Update, ASU 2016-14: Presentation of Financial Statements for Not-for-Profit Entities, updating the over 20-year old financial reporting model of not-for-profit entities. Gain insight from Doeren Mayhew on what is changing and when it will begin impacting you.

What Changes are on the Horizon?

The ASU is not meant to be a complete overhaul of the current reporting model, yet an update to improve organizations ability to communicate their financial performance, as well as reduce costs and complexities in preparing financial statements. To help you better understand the changes that lie ahead, our not-for-profit advisors have summarized the key modifications below:

  • Net asset classes will be reduced from three to two
  • New board-designated net asset disclosures will be required
  • Expiration of restriction on gifts to be used to acquire or construct a long-lived assets must be accounted for using the placed-in-service approach
  • New liquidity and availability disclosures will be required
  • Expenses must be reported by nature and function in one place, and describe the methods used to allocate among functional categories
  • Net investment return will replace other alternatives
  • Underwater endowment fund full balances will be reported in the “with donor restrictions” class of net assets
  • Additional disclosures will be needed for underwater endowments
  • Use of the direct method in a statement of cash flows will eliminate indirect reconciliation currently required for operating activities
  • Changes to the Internal Revenue Service Form 990 is not expected to be significant

In addition, there have been changes made to terms in the master glossary which can be found on the FASB website.

The Timeline

Effective for fiscal years beginning after Dec. 15, 2017 (e.g. calendar year 2018 or fiscal year 2018/2019), the ASU does allow early adoption if regular transition provisions are applied, which includes:

  • In year of adoption, all provisions of the new ASU must be applied on a retrospective basis.
  • However, if comparative years are presented, your organization has the option to choose not to present the analysis of expenses by nature and function, disclosures about liquidity and availability of resources for all periods presented before adoption.

Start Planning

These changes don’t take effect until the calendar year 2018 (or fiscal year ending in 2019), however early planning will be necessary – especially if your organization plans or desires to adopt the changes early. Unlike some past changes prompted by the FASB, these new requirements will require much more than simple footnote disclosure changes in your financial statement from you and your accounting staff.  If you want help implementing these changes in your not-for-profit organization, contact Doeren Mayhew’s CPAs and advisors today.