Implementing Reporting Changes for Not-for-Profit Organizations

By Kristin Clayton, CPA

About a year and a half ago I wrote a blog about the significant reporting changes coming for not-for-profit organizations. At the time, it seemed almost silly to write about because the effective date was still quite a way out. But I blinked and now we are there! The statement and disclosure changes required by Accounting Standards Update 2016-14Presentation of Financial Statements of Not-for-Profit Entities (ASU 2016-14) is effective for calendar years ending 12/31/18.

Hopefully you are fully prepared for the changes and aren’t sweating that the implementation is just around the corner. Or maybe you early implemented and all the work is done! For those of you that haven’t started the implementation process or haven’t heard about ASU 2016-14, here are some highlights to get you through the change. These highlights don’t cover all the changes required by ASU 2016-14, but will briefly touch on just a few of the more significant changes.

• Net asset classifications will change from 3 classifications (unrestricted, temporarily restricted and permanently restricted) to 2 classifications (net assets without donor restrictions and net assets with donor restrictions)
  • There are likely no accounting changes necessary to comply with this change but rather just a combination of temporarily restricted and permanently restricted into 1-line item on your Statement of Financial Position
• Liquidity and Availability disclosures are now required
  • These disclosures will explain how the organization manages its financial assets to meet cash needs and provide the amount of liquid financial assets available for general operating expenses for the next 12 months.
  • Organizations will want to consider what their current operating, reserve and investment policies say regarding the availability of their funds as this information will now be included in the financial statement disclosures. If you don’t have a formal policy, now is the time to adopt one!
• Statement of Functional Expense is now required
  • Must show expenses by both their function (program, management & general, fundraising) and their nature (salaries and benefits, office expense, depreciation, etc.)
  • Can be shown with the Statement of Activities, as a separate Statement of Functional Expense or in the disclosures to the financial statements
  • Must disclose the methods used to allocate expenses among program, management & general and fundraising. Examples of methods include: time and effort or square footage.

While these are just a few of the changes, I believe they are the changes that may have the most impact and time involved in implementing ASU 2016-14. We are happy to help with this implementation and can provide sample disclosures and statements at your request. Wishing you a Happy Holiday and ASU 2016-14 Implementation Season!

Kristin Clayton, CPA | Senior Manager
KClayton@MHCScpa.com