Thomson Reuters has released a Checkpoint report that provides guidance on a new Financial Accounting Standards Board (FASB) accounting standard related to the preparation of financial statements for nonprofit organizations. It discusses some of the most significant changes to the existing financial reporting framework as well as the important implementation issues.
Accounting Standards Update (ASU) 2016-14 was issued in 2016 and will become effective for annual financial statements issued for fiscal years beginning after December 15, 2017. It represents the first outcome of a two phase project which the FASB initiated to reexamine the current standards, which have existed for more than two decades.
The report addresses the reduction of net asset classes from three to two (soon to be: “net assets with donor restrictions” and “net assets without donor restrictions”), while noting the need to still distinguish between the types of restrictions donors place on their gifts. On a related topic, the deficit of a donor-restricted endowment fund previously reported in unrestricted net assets will need to be reclassified and reported as net assets with donor restrictions, which in turn will introduce additional requirements.
Regarding liquidity and availability of resources, the report discusses the need for additional disclosures, including qualitative and quantitative information about the availability of resources to meet cash needs for general expenditures within the next year. It covers additional changes, including an expansion of the requirement to report expenses by both functional and natural classifications; a push toward the direct method of reporting cash flows; and a new requirement to net investment expenses against investment return.
“The new FASB accounting standard will introduce meaningful changes to the way nonprofit organizations prepare their financial statements,” said Scott Spradling CPA, vice president, Audit and Accounting Segment with the Tax Professionals business of Thomson Reuters. “This report delves into some of the major changes and provides valuable context to help these organizations and the practitioners who support them prepare for the upcoming transition.”
The report also discusses flexibility in reporting options during the transition period and advises on preparations that organizations should soon undertake to ensure a smooth transition. It further advises auditors to be mindful of the point at which their consultation may cross into the realm of nonattest services.
To download the special report, click here.
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