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FASB: Not-For-Profit Reporting Change

By Elizabeth Kennedy
September 1, 2016
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Young people volunteering to sort donations for charity food drive

On August 18, 2016, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities (Topic 958). The ASU changes how not-for-profit (NFP) organizations classify their net assets and present information in financial statements and notes about liquidity, financial performance, and cash flows.

 

Although the current NFP financial reporting model worked well for two decades, FASB Chair Russell G. Golden noted that “stakeholders expressed concerns about the complexity, insufficient transparency, and limited usefulness of certain aspects of the model.” He explained, “The new guidance simplifies and improves the face of the financial statements and enhances the disclosures in the notes, which will enable not-for-profits to better communicate their financial performance and condition to their stakeholders while also reducing certain costs and complexities in preparing their financial statements.”

 

The improved presentation and disclosures should enable organizations to give better information about the ongoing state of resources to donors, grantors, creditors, and others. NFP firms will be required to supply both qualitative and quantitative information about net asset classes, investment return, expenses, liquidity and availability of resources, and operating cash flows.

 

NFP organizations affected include charities, foundations, colleges and universities, healthcare providers, religious organizations, trade associations, and cultural institutions. The ASU is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018.

 

Elizabeth Kennedy is the feature editor at IMA. You can reach her at ekennedy@imanet.org.
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