FASB Issues New Guidance on Nonprofit Financial Reporting
Periodically, The Financial Accounting Standards Board (FASB) updates their standards to improve the reporting transparency of on organization. Starting with calendar year 2018, reporting presentations will change for the improvement of:
- Net asset classifications
- Financial statement notes about liquidity, financial performance and cash flows.
The changes are significant, so please reach out to your auditor to insure you are in compliance.
The fundamental changes are as follows:
Net Asset Classes:
The three standard net asset classes will fold into two classes.
- Net assets with donor restrictions
- Net assets without donor restrictions
The distinction between temporarily and permanent restrictions will be removed. The change will enhance the disclosure requirements for the amounts and purposes of board designated net assets and define how restrictions affect the use of the funds.
Statement of Cash Flows
NFPs can continue to use the direct or indirect method of reporting operating cash flows but they are no longer required to disclose the reconciliation if using the direct method. An organization can use the method that discloses their details best. Work closely with your auditor to determine the best method for your donors, grantors, and other stakeholders.
Liquidity of Resources
A NFP is required to disclose the qualitative information about how liquid resources are managed. A NFP must disclose the availability of financial assets to meet cash needs for the general expenditures within one year.
A NFP will need to net external and direct internal investment expenses against their investment returns, without then disclosing this breakdown in the financials. Salaries and associated expenses of direct staff can be allocated. The requirement to itemize the investment returns for changes in net assets has been removed.
Reporting of Expenses
All NFP are now required to report expenses by nature and function. Both aspects must be reported as such in either the statement of activities, a functional expense statement or a schedule in the notes of the financials.
Above are just the highlights of the changes. Please review the formal standards and reach out to your auditors to insure you are in compliance prior to year-end.