On August 18, 2016, FASB released the much anticipated Accounting Standards Update (ASU 2016-14): “Presentation of Financial Statements of Not-for-Profit Entities”. These changes will impact all nonprofits and are geared towards improving nonprofit financial statements and to provide more useful information to stakeholders. FASB ASU 2016-14 is the first of a two-phase project, intended to strengthen clarity, transparency, and consistency in nonprofit financial reporting. The effective date for phase 1 is annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. For detailed information, view the complete standard on the FASB website.
Highlights of Changes Related to Net Assets:
Nonprofit organizations currently utilize three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. These will now become two classes:
- Net assets with donor restrictions
- Net assets without donor restrictions
Footnote disclosures will be required to include the timing and nature of the restrictions, as well as the composition of net assets with donor restrictions at the end of the period.
Part of the associated changes to net asset classifications will include a change to how underwater endowments are handled. Under the new guidelines, these assets (that have a current value that is less than the original gift or required to be retained amount) will now be classified as ‘net assets with donor restrictions’. Board-designated net assets will now require disclosure of amounts and purposes. Additional disclosures related to these assets will also be required.
Nonprofits currently can recognize the expiration of a donor restriction over time, but under new guidelines, they will need to reclassify net assets with donor restrictions that are used to acquire or construct long-lived assets as “net assets without donor restrictions” when the asset is placed in service.
Highlights of Changes Related to Statement of Cash Flows:
Currently nonprofit organizations are required to provide an indirect reconciliation when using the direct method of presenting operating cash flows. With the new guidelines, nonprofit organizations will be able to select the presentation method that best serves the entity, and no reconciliation will be required.
Highlights of Changes Related to Statement of Activities:
With the new FASB guidelines, nonprofits will need to present the amount of change in each of the two new classes of net assets and the total net assets. They will need to present two subtotals of operating activities that each correspond with changes in net assets without donor restrictions. All nonprofit orgs will now have to provide information about their operating expenses by both nature and function and include enhanced disclosures about their methods of allocating costs among the different functions. A ‘net presentation’ of investment expenses against investment return will be required on the face of the statement of activities.
Other Changes: Transparency/Liquidity
Additional/enhanced qualitative and quantitative information will be required, on the face of the balance sheet or in the notes—to report on spendable financial resources.
Utilizing Best-in-class Technology to Make it Easy:
For nonprofit organizations utilizing Intacct, you can relax! The dimensional architecture of Intacct makes these types of changes as simple as point-and-click. Whether you are moving from three to two net asset classifications, or adding subtotals and dimensions to your Statement of Activities, reporting flexibility and configurability within Intacct let you adapt to the new requirements in minutes instead of days or weeks. Dimensions in Intacct allow you to easily track by restriction types, and dimension groups allow you to summarize your reporting data. In this case, your ‘restriction’ dimension likely has three sub-groups: unrestricted, permanently restricted, and temporarily restricted. To report according to the new rules, you can edit a dimension group and change the way your results roll up—from three classifications to two. Just point and click to update your ‘restriction’ dimension to now include “with donor restriction” and “without donor restriction”. This is just one specific example of how Intacct has been architected to help non-profits adapt quickly to change, whether that’s regulatory change or changes to your funding streams and programs.
For updates to your reporting format, simply edit existing reports and point and click to add/insert the new columns, rows, and sub totals. With a modern technology and architecture at your fingertips, you gain the deepest visibility, greatest flexibility, and easy configurability.
Coming Soon: Phase 2
Phase 2 of the FASB’s nonprofit project will be focused on addressing additional issues like Operating measures and alignment of measures between your Statement of Activities and Statement of Cash Flow. Again, a modern, flexible, and configurable solution, like Intacct, will be key for easy compliance as well as real time visibility to the metrics that matter most to your organization.
Additional resources for more information on ASU 2016-14:
The new ASC 606 and IFRS 15 accounting standards—some of the most far-reaching changes to accounting since Sarbanes-Oxley—are only a few quarters away. Get ASC 606 Resources such as news, assets, and learn about the advantages Intacct provides in helping you address these changing rules with Intacct Contract Revenue Management and Contract and Subscription Billing.