By: William Bauder, CPA, CGMA, CITP, Manager of Assurance and Advisory Services
The Financial Accounting Standards Board (FASB) recently issued a new accounting standard in regards to not-for-profit organizations and their financial statements. This change is sure to be felt throughout the not-profit community, as this is the first significant change made to the FASB’s current guidelines since 1993. After nearly a quarter century of doing things one way, not-for profits will now have to adhere to the new standard that changes the disclosure and presentation requirements for financial statements. This new standard is designed to assist not-for-profits in sharing more detailed and relevant information with everyone from donors to creditors and everyone in between that may review their financial statements. According to the FASB, the new standard simplifies and improves the face of the financial statements for not-for-profits and enhances the disclosures in the notes.
Here is a summary of some of the biggest changes:
- Net asset classifications: net asset classifications will be changing from the traditional three classifications (permanently restricted, temporarily restricted, unrestricted) to two classifications (with donor restrictions, without donor restrictions)
- Cash Flows: organizations will now have the option to report cash flows using the direct method, without also having to present the indirect method.
- Underwater endowments: Changes the reporting of underwater endowment amounts within net assets with donor restrictions and enhances disclosure requirements.
- Liquidity: changes in the disclosure requirements on how the organization manages its liquid available resources and liquidity risk.
Luckily we will have more time to digest and plan for these new standards as they are effective for annual reporting periods beginning after December 15, 2017. If you would like more information on this recent accounting change, or any other accounting matters, feel free to give us a call, we would be happy to help.