Not-for-Profit Entities (ASU 2016-14), issued in 2016, establishes a new protocol for notfor-profit organizations in classifying net assets and preparing financial statements.The goal is to provide better information to donors, grantors, creditors, and other users of financial statements

1. The Financial Accounting Standards
Board (FASB) has issued the first major
set of changes to not-for-profit financial
statement reporting in more than 20 years.
Presentation of Financial Statements of
Not-for-Profit Entities (ASU 2016-14), issued
in 2016, establishes a new protocol for not-
for-profit organizations in classifying net
assets and preparing financial statements.
The goal is to provide better information to
donors, grantors, creditors, and other users
of financial statements.
Key Provisions
The provisions of ASU-2016-14 are effective
for annual financial statements issued for
fiscal years beginning after December 15,
2017 and for interim periods within fiscal
years beginning after December 15, 2018.
The first part of a two-phase project, the
guidance calls for the following:
• Improved presentation and
disclosure for net asset classes
Three existing classes of net assets will
now become two: net assets without
donor restrictions and net assets with
donor restrictions. Organizations will still
need to disclose the nature and amounts
PRESENTATION OF FINANCIAL STATEMENTS
OF NOT-FOR-PROFIT ENTITIES (ASU 2016-14)
of all donor imposed restrictions. However,
under the new guidance, they will now need
to disclose the amounts and purpose of all
board designated net assets.
• Enhanced information on liquidity and
availability of financial resources
To provide financial statement users with
a better understanding of a not-for-profit
entity’s exposure to liquidity risk and how
it manages its liquid available resources,
organizations must provide both quantitative
and qualitative information. This information
will communicate the availability of
financial assets to meet cash needs for
general expenditures within one year of
the statement of financial position date.
This may be among the most challenging
of the newly required disclosures.
• Enhanced information on expenses
and expense allocation
All NFPs will be required to present expenses
by function and by natural classification. This
information must be shown in one location,
either all in the notes or all on the face of
the financial statements. NFPs will also be
required to provide qualitative disclosures
about the methods used to allocate costs
among program and support functions.

2. Gain Insight
For more information on ASU 2016-14 and to proactively prepare
for implementation, please contact Kelly Frank, Partner and Not-
for-Profit and Education Industry Practice leader, at 973-403-7999
or kelly.frank@cohnreznick.com, John Alfonso, Partner, Not-for-
Profit and Education Industry Practice at 646-254-7415 or
john.alfonso@cohnreznick.com, or Catherine Syslo, Director,
Quality Control, at 862-245-5024 or catherine.syslo@cohnreznick.com.
• Enhanced reporting of investment return
Net presentation of investment expenses against investment
income will be required on the face of the statement of activities.
• Continued allowance of a choice between direct and
indirect method of reporting operating cash flows
NFPs may continue to present cash flows using either the direct or
indirect method. However, they will no longer be required to present
the indirect method reconciliation if the direct method is used.
• Revised classification of underwater endowments
For “underwater” donor-restricted endowment funds (i.e., the fair
value is less than the original gift amount or amount required to
be maintained), the accumulated losses will be included together
with that fund in net assets with donor restrictions. The fair value of
the underwater funds, the original endowment gift amounts, and
the amounts of the deficiencies of the funds must be reported.
Implementation Services
NFP executives should begin educating their organizations’ key
stakeholders―board members, bankers, and donors―about
ASU 2016-14. CohnReznick’s Not-for-Profit and Education Industry
practice professionals can provide your organization with a range
of pre-planning, training, and implementation services to help
you meet the compliance deadline for the new standard. Our
services include:
• Training that is customized for your personnel on all key aspects
of the new standard
• Assisting your organization’s management in developing a
comprehensive implementation strategy
• Assisting your management in drafting pro-forma financial
statements
• Reviewing and recommending changes to your management’s
pro-forma financial statements
• Evaluating and assisting your organization in preparing the
requisite disclosures pertaining to liquidity
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