The Financial Accounting Standards Board (FASB) issued an update to the standards for not-for-profit entities in August 2016.
This new standard is expected to enhance the usefulness of financial reporting information provided to donors, grantors, creditors and other users of a not-for-profit organization’s financial statements.
Here is a (very) quick summary of some of the issues that this new update addresses:
- Change from three classes of net assets to only two classes of net assets. Now, there are only two classes of net assets: net assets with donor restrictions, and net assets without donor restrictions.
- Present on the face of the statement of activities the amount of change in each of those two classes of net assets
- Continue to present the statement of cash flows using either the direct or indirect method, but no longer requiring disclosure of the indirect method if using the direct method.
- Provides enhanced disclosures about board designated restrictions, composition of net assets with donor restrictions, qualitative and quantitative information about management of liquid resources for meeting cash needs of the organization, expenses by natural and functional classification, methods used to allocate costs and underwater endowment funds.
- Report investments returns net of expenses.
- Eliminates the need to “release” donor-imposed restrictions over the estimated useful life of long-term assets by using the placed-in-service approach for reporting expirations of restrictions on gifts of assets used to acquire or construct a long-lived asset.
If you still aren’t exactly sure what this means for your not-for-profit organization, one of our accountants at Burdette Smith & Bish LLC would be happy to go over it with you in more detail.
Burdette Smith & Bish staff are currently working with our NFP clients to ensure that they are ready to implement the new standards by the effective date or sooner as we deem helpful to the organization. The new standards are required for fiscal years beginning after December 15, 2017, but early application is permitted.
If you are interested in learning more about this new standard and how it will apply to your organization, contact your organization’s current CPA as soon as possible. Our staff would also welcome an opportunity to discuss these new standards in more detail with you. Call our office to schedule an appointment at 703-591-5200 or contact us here.