New Financial Reporting Standards for Not-for-Profitsv4
1. New Financial Reporting Standards for Not-for-Profits
Presented by
Denise McKnight, CPA, Partner & Marie DeCicco, CPA, Principal
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Table of Contents
2
• Purpose of Revision
• Who does it effect? When is it
effective?
• Net Asset Classes
• Reporting of Expenses by Nature
and Function
• Statement of Cash Flows
• Long-lived Assets Donated
• Investment Expenses
• Disclosures
• FASB - Phase 2
• Q&A
• Other Resources
• Contact Information
3. Purpose of Revision
3
• To address the following:
– Eliminate complexities and confusion with the
current 3 net asset classes – unrestricted,
temporarily restricted, permanently restricted
– More transparency and information on assessing
liquidity
– Add consistency to the presentation of expenses
– Eliminate the hurdle of preparing the indirect
method reconciliation if a NFP uses the direct
method for the statement of cash flows
4. Who does it effect? When is it effective?
4
• All NFPs with financial reporting requirements – internal
statements, compilations, reviews and audits
• ASU No. 2016-04 – issued August 2016
• Effective for fiscal years beginning after December 15,
2017 – years ending 12/31/18 and after; fiscal years
ending June 30, 2019
• Interim periods within fiscal years beginning after
12/15/18
5. Who does it effect? When is it effective? (continued)
5
• Early adoption permitted
• Changes will be applied retrospectively –
– If showing comparative information, can omit
the following for the prior period:
• Analysis of expenses by both natural and functional
classification
• Disclosures about liquidity and availability of
resources
6. Net Asset Classes
6
• Eliminates the current 3 classes and –
unrestricted, temporarily restricted and
permanently restricted
• 2 classes –
– With donor restrictions - includes previous
temporarily and permanently restricted net assets
– Without donor restrictions – includes board
designated net assets
7. Net Asset Classes (continued)
7
• When the restriction is met, there will be a
release from and decrease in net assets
with donor restrictions
• Statement of Financial Position and
Statement of Activities and Net Assets –
required to present the 2 classes and the
total net assets
13. Reporting of Expenses by Nature and Function
13
• To be reported in one location, which can
be –
– On the face of the statement of activities
– As a schedule in the notes, or
– In a separate financial statements (such as a
statement of functional expenses)
17. Long-lived Assets Donated
17
•No longer release the donation over time to
match depreciation expense
•Unless the donor stipulations limit the use of
the assets for a period of time or purpose,
donor restrictions on long-lived assets, or
cash to acquire or construct long-lived assets
are considered to have expired when the
assets are placed in service
18. Investment Expenses
18
Report investment returns net of external and
direct internal investment expenses and no
longer required to disclose the amount of
netted investment expenses
19. Disclosures
19
• Amounts and purposes of governing board
designations, appropriations, and similar
actions that result in self-imposed limits on
the use of resources
• Composition of net assets with donor
restrictions and how the restrictions affect
the use of resources
21. Disclosures (continued)
21
• Qualitative information on how a NFP manages its liquid
resources available to meet cash needs for general
expenditures within one year of the SOP date
• Quantitative information, either on the face of the SOP or in
the notes on the availability of an NFP’s financial assets to
meet cash needs for general expenditures within one year
of the SOP; affected by –
‒ Its nature
‒ External limits imposed by donors, laws and
contracts
‒ Internal limit imposed by governing board decisions
24. Disclosures (continued)
24
Method(s) used to allocate costs among
program and support functions. Here is
sample wording:
The financial statements report certain categories of expenses that are
attributable to more than one program or supporting function.
Therefore, these expenses require allocation on a reasonable basis
that is consistently applied. The expenses that are allocated include
depreciation, interest and office and occupancy, which are allocated
on a square-footage basis, as well as salaries and benefits, which are
allocated on the basis of estimates of time and effort.
25. Disclosures (continued)
25
Reclassifications – in the period that the
amendments are first applied, there should be
a disclosure of the nature of any
reclassifications or restatements and their
effects, if any, on changes in net asset classes
for each period
26. Disclosures (continued)
26
Underwater Endowment Funds, required disclosures –
1) The policy and any actions taken during the period
concerning appropriation from underwater endowment
funds,
2) the aggregate value of such funds,
3) the aggregate of the original gift amounts (or level
required by donor or law),
4) the aggregate amount by which funds are underwater
(deficiencies), which are to be classified as part of net
assets with donor restrictions.
27. Phase 2 for the FASB
27
Expected to focus on whether and how to
define the term operations and align measures
of operations (or financial performance) as
presented in the statement of activities with
measures of operations in a statement of cash
flows
