November 2017 – Changes on financial reporting requirements for nonprofit organizations

In August 2016 the FASB issued the Accounting Standards Update (ASU) No.2016-14. This update makes several amendments on financial reporting requirements for nonprofit organizations. The amendments are effective for fiscal year beginning after December 15, 2017.

Followings are some important amendments that affect all nonprofit organizations.

1. On the statement of financial position, there will be only 2 classes of net assets: Net assets with donor restrictions and Net assets without donor restrictions.
(Currently there are 3 classes of net assets: Unrestricted, Temporarily restricted, and Permanently restricted).

With this amendment, nonprofit organizations do not need to separate temporarily restricted and permanently restricted net assets anymore.

2. Certain enhanced disclosures need to be made:
a. Composition of net assets with donor restrictions at the end of the period and how the restrictions affect the use of resources.
b. Qualitative and quantitative information on how the nonprofit organization manages its liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date.
c. An analysis of expenses by both their natural classification and functional classification.
d. Methods used to allocate costs among program and support functions.

3. Report investment return net of investment expenses and no longer require disclosure of those netted expenses.

This article just presents some important amendments only. Nonprofit organizations are recommended to read the full text in ASU No.2016-14 or consult their external CPAs to understand clearly how the amendments affect their financial reporting and bookkeeping.