As part of your nonprofit financial management best practices, keeping up to date on FASB standards is important. We have an update on FASB ASU 2016-14 that nonprofits should understand and follow to comply with the latest accounting standards updates.
FASB ASU 2016-14: Net Asset Classification Information
As you may recall, FASB ASU 2016-14 changes net asset classification from three categories to two. The reporting and disclosures of net assets changes with this update.
The two new categories are:
- Net assets with donor restrictions
- Net assets without donor restrictions
These two categories replace the current three categories:
- Unrestricted
- Temporarily restricted
- Permanently restricted
Many areas may affect financial statements and how net assets are classified. It’s smart to speak with a CPA who specializes in nonprofit accounting. A CPA may ask you, for example, if your organization has already updated the statement of financial position and the statement of activities. You may wish to update these areas to change the net asset categories from temporarily and permanently restricted net assets to the updated terms. Remember, the updated terms are net assets with donor restrictions and net assets without donor restrictions.
Review the Notes to Financial Statements
Take time now to review the notes to the financial statements. Replace “temporarily restricted” and “permanently restricted” net assets with the new categories, net assets with donor restrictions and net assets without donor restrictions.
You Can Disaggregate the Two Net Asset Categories
If you feel as if you still need more leeway in the net asset categories, the option remains open to further disaggregate them in the financial statements. For example, after reflection and discussion, your nonprofit financial management team may decide to disaggregate net assets with donor restrictions between those expected to be maintained in perpetuity and those expected to be spent over time. The amounts for each of the two categories of net assets, as well as the total of net assets, must be reported in a statement of financial position.
Required Enhanced Disclosures
Also of note, the ASU will require enhanced disclosures about the purpose and amounts of the governing board’s designations, appropriations, and similar actions that result in self-imposed restrictions at the end of the period.
The placed-in-service approach will also be required when releasing restrictions related to long-lived assets.
Also, the option to imply a time restriction and release the restrictions over an asset’s useful life will no longer be permitted unless it’s explicitly stated by the donor.
Confused? Please don’t be. There’s still time to read up and learn more about ASU 2016-14.
For more information on ASU 2016-14, please see:
Beck & Company
We can help you with the FASB and ASU updates, with audits, and any nonprofit accounting needs. We are CPAs who focus on the nonprofit area and who have the experience to help you navigate the unique needs of nonprofit financial reporting. Contact us today.