In 2016, The Financial Accounting Standards Board (FASB) released its Accounting Standards Update (ASU) 2016-14 for Presentation of Financial Statements of Non-for-Profit Entitles based on feedback it gathered from a broad spectrum of stakeholders, which includes: colleges and universities, environmental organizations, private and community foundations, CDFIs, trade associations, health care providers, religious organizations, social service providers and other nonprofit organizations.
The new standard revealed many impactful changes to nonprofit accounting such as:
- The IRS hasn’t addressed changes from the new standard, such as the reduction of net asset classes from three to two, so don’t start making drastic changes to your accounting system structure quite yet.
- You’ll likely still account for transactions as usual, but you’ll need to understand when to net, combine, or further breakout information under the new standard.
- For organizations with a lot of capital projects, the changes to the accounting for capital gifts could impact debt covenants and ratios. You may want to review these changes earlier with your lenders.
- Although the new standard creates more consistency in presentation and disclosure, you still have some options with how to present your information and tell your story. This is a good time to take a fresh look at the way you want to communicate information to your board, donors, and the public.
- The increased disclosures about financial health and liquidity also come at a time when a new going concern standard has just been adopted. Understand that the information in these disclosures will provide additional information that can be used to evaluate whether or not your organization will continue as a going concern.
Click here to download a summary of the new nonprofit financial reporting standard.
The standard is effective for years beginning after December 15, 2017 (e.g. December 31, 2018 or June 30, 2019 year ends) and some planning will be required.
We are happy to assist you with any questions on how to implement this new standard.