On August 18, 2016, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update No. 2016-14 (ASU 2016-14)
on Presentation of Financial Statements of Not-for-Profit
Entities. ASU 2016-14 (the Update) represents the most
significant changes to not-for-profit financial reporting since
In general, the goal of the Update is to provide more
transparent information that will enable financial statement users
to better assess an organization's liquidity and financial
flexibility. The Update includes the following main provisions:
The Update replaces the existing three classes of net assets
(unrestricted, temporarily restricted and permanently restricted)
with two new classes: Net assets with donor restrictions
and net assets without donor restrictions.
The Update requires the reporting of expenses by both their
natural and functional classifications, either on the face of the
statement of activities, as a separate statement, or in the notes.
The Update also enhances the disclosure of the method used to
allocate costs among functions.
Statement of Cash Flows
For organizations that choose to use the direct method of
reporting, the Update eliminates the requirement to also present a
reconciliation under the indirect method of reporting.
Amounts and purposes of board designations, appropriations and
similar actions that result in self-imposed limits on the use of
resources without donor-imposed restrictions as of the end of the
Composition of net assets with donor restrictions at the end of
the period and how the restrictions affect the use of
Qualitative information on how an organization manages its
liquid resources available to meet cash needs for general
expenditures within one year of the end of the period.
Quantitative information, either on the face of the statement
of financial position or in the notes, that communicates the
availability of an organization's assets at the end of the
period to meet cash needs for general expenditures within one year
of the end of the period.
Underwater Endowment Funds
Changes the classification to now be reported under net assets
with donor restrictions along with expanded disclosures.
To be reported net of external and direct internal investment
expenses and no longer require the disclosure of the netted
Gifts To Be Used to Acquire or Construct a Long-Lived
In the absence of explicit donor stipulations, organizations are
to use the placed-in-service approach for reporting expirations of
restrictions on gifts of cash or other assets to be used to acquire
or construct a long-lived asset (eliminating the current option to
release the donor-imposed restriction over the estimated useful
life of the acquired asset).
The amendments in this Update are
effective for annual financial statements issued for fiscal years
beginning after December 15, 2017. Early application of the
amendments in the Update is permitted.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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