FASB Issues Long-Awaited Nonprofit Financial Reporting Standard

By: Tim McCutcheonTim McCutcheon

The Financial Accounting Standards Board (FASB) has issued its long-awaited and much debated Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements for Not-for-Profit Entities. The ASU is the first in a two-phase project, and will change the way all not-for-profits (NFPs) classify net assets, prepare financial statements, and disclose certain liquidity and other information. The ASU is effective for fiscal years beginning after December 15, 2017 (i.e., for years ending December 31, 2018 and beyond). Early application is permitted by FASB. The amendments should be applied on a retrospective basis in the year that the ASU is first applied, with some optional exceptions. Obtain the ASU from FASB by clicking here.

FASB believes the new standard will improve NFP financial reporting by:

  • Reducing the complexity in net asset classification by eliminating the concept of permanently restricted net assets; this better aligns with the provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA)
  • Improving the transparency and utility of information regarding liquidity and availability of cash to meet general expenditures
  • Increasing information as to what is and is not included in an entity’s financial performance measure
  • Eliminating inconsistencies in the type of information provided in reporting of expenses by function and nature across NFPs
  • Eliminating the requirement to prepare the indirect method reconciliation if an NFP chooses to use the direct method of presenting operating cash flows

For more information, read the full article here.

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