Accounting Standards Update 2016-14 Provisions Become Effective For Year Ends Beginning After December 15, 2017
ASU 2016-14: Not-for-Profit Entities
In August, 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-14, affecting accounting and related financial reporting of not-for-profit entities. This standard was seen as the first in a two-phase project to revamp financial reporting for not-for-profit entities. The new guidance has 3 main provision which will affect the vast majority of not-for-profits.
- By far, the most sweeping change of the new standard is the elimination of the requirement to classify net assets as permanently versus temporarily restricted. Under the new standard, net assets will be classified as either those with donor restrictions or those without donor restrictions, thereby reducing the potential net asset classification categories from three (unrestricted, temporarily restricted, and permanently restricted) to two; net assets with donor imposed restricted and net assets without donor imposed restrictions. This change does not reduce the reporting entity’s requirement to disclose the various types and length of restrictions on net assets within the footnotes.
- Under existing guidance, only those not-for-profit entities classified as voluntary health and welfare organizations were required to report an analysis of expenses by both natural classification as well as functional classification. Under ASU 2016-14, the requirement to provide a Statement of Functional Expenses has been expanded to include all not-for-profit entities.
- Finally, ASU 2016-14 set out to enhance the usefulness of the financial statement by requiring not-for-profit entities to include new disclosures. These new disclosures will provide readers with both qualitative and quantitative information regarding the liquidity and availability of resources. While astute users of the financial statements could always ascertain the liquidity of an organization through analysis of the financial statements, this information will now be disclosed within the footnotes. Required disclosures will include not only the current financial position of the organization, but will also include a calculation of available resources, including debt funding.
The provisions of ASU 2016-14 become effective for all not-for-profit entities for year ends beginning after December 15, 2017 (effectively, calendar year ended December 31, 2018). Early application is permitted, and comparative financial statements would require a retrospective application to the earliest year presented.
For additional details on how this standard will affect your not-for- profit organization, or for implementation suggestions, please don’t hesitate to contact our Partner Jason Mayausky, CPA at (585) 410-6733 ext. 144 or via email at firstname.lastname@example.org.