The last major change to not-for-profit financial statements happened in 1993
25 years later…It’s happening again…Are you ready?
Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, is effective now for organizations with December 31, 2018 year-ends and will be in effect soon for all fiscal year-end 2019 organizations. Some of the key provisions of the update that you will need to be prepared to implement are:
- Change in net asset classification – net assets will no longer be presented as unrestricted, temporarily restricted, and permanently restricted – they will be with donor restrictions and without donor restrictions.
- Liquidity disclosures – new qualitative (describing how liquid resources are managed and liquidity risks) and quantitative (a numeric reconciliation showing show funds available to meet general expenditures over the next year) liquidity disclosures will be required.
- Functional expenses – expenses will now be required to be presented by both their nature and function (preferably in a matrix format) including enhanced disclosures. There are also enhanced guidelines regarding presentation, so those who have been presenting functional expenses already will still need to ensure they are in compliance with the new standard.
- Direct vs. indirect cash flows – Organizations have always had a choice in cash flow presentation, however if the direct method was used an indirect reconciliation was required. Going forward this reconciliation will not be required. It may be time to evaluate which presentation is best for your organization.
- Underwater endowments – enhanced disclosures will be required for underwater endowments including – 1) actions taken during the year, 2) aggregate value of funds, 3) value of original gift, and 4) presentation of the underwater amount as part of net assets with donor restrictions.
- Other changes – 1) change in the presentation of investment return and 2) the requirement to now use the “placed-in-service” approach for gifts of long-lived assets.
We want you to know that you are not alone and that we are here to help you to implement these changes. Many appear simple, but gathering the necessary information may require changes to your chart of accounts or how you maintain your data, which may not be easy. We can assist you with evaluating the impact these changes will have on your financial statements, daily accounting, and your chart of accounts.
For more information on how we may help, please contact any of the individuals below:
John Fedus, CPA
Partner Not-for-Profit Services
Beth Ulbrich, CPA, CGMA
Partner Accounting Services