On August 18, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities (the ASU).
The ASU is designed to improve and simplify the financial statement presentation and disclosures of not-for-profit entities.
For many organizations, the most important provisions of the ASU will be:
- The elimination of the terms “unrestricted”, “temporarily restricted”, and “permanently restricted” net assets. These concepts will be replaced by the terms net assets with donor restrictions and net assets without donor restrictions. In essence, the “permanently restricted” net asset category has been eliminated.
- Allowing for a more intuitive approach to the reporting of underwater endowment funds. Instead of reporting accumulated losses related to endowment funds as a reduction in unrestricted net assets, such items will be reported as a reduction in the endowment fund balance.
- All organizations will now be required to present information regarding their expenses on both a natural and functional basis. This information can be presented in the financial statements or as part of the footnotes.
The ASU is effective for fiscal years beginning after December 15, 2017. A complete copy of the ASU can be found on the FASB’s website.
Also, mark your calendars! Tate & Tryon will be hosting a seminar on the ASU on Friday September 16th. Information about registering for this program will be forthcoming – stay tuned!
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