ASU Update Reminders for 2019
As we get into the swing of 2019, nonprofits should be aware of some important changes to financial statement requirements. Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of NFP Entities is effective for December 31, 2018 and after year ends. This ASU details certain financial statement presentation standards that nonprofits are required to maintain, moving forward. While all nonprofits must follow the new standards, some organizations will feel the impact of the changes more than others.
Here’s a quick summary of the major changes included in ASU 2016-14:
Changes to Net Asset Classification – ASU 2016-14 eliminates the net asset classes “unrestricted,” “temporarily restricted” and “permanently restricted.” It establishes two new classifications, “without donor restrictions” and “with donor restrictions.”
Cash Flow Statement Adjustment – The ASU continues to allow nonprofits to choose between the direct and indirect methods when presenting operating cash flows. It also establishes that indirect reconciliation is no longer required if the direct method is used.
New Expense Reporting Requirements –
- Functional reporting and natural classification is now required either on the face of the financial statements or in the notes.
- Nonprofits must use qualitative disclosures about methods used to allocate expenses between program and support functions.
- In regards to management and general expenses, the costs of oversight and management— generally expenses of the governing board and Executive Director—will now be charged to management and general, unless such staff spend a portion of their time directly conducting or supervising program services or categories of other supporting services.
Creation of Two New Required Disclosures – ASU 2016-14 establishes two new required disclosures:
- Liquidity Disclosure: Qualitative information that is helpful in assessing an entity’s liquidity and communicates how the nonprofit manages its liquid resources that are available to meet cash needs for general expenditures within one year.
- Availability Disclosure: Qualitative information about availability of financial assets to meet the cash needs for general expenditures within one year. Availability may be affected by (1) external limits (those imposed by donors, laws, and contracts with others) and/or (2) internal limits (those imposed by decisions made by the governing board).
Reporting of Investment Return – Investment expenses will now be netted against investment returns on the face of the statement of activities. Both the disclosure of investment expenses and the disclosure of investment return components are no longer required.
As always, please don’t hesitate to reach out to me with any questions you may have.