The Financial Accounting Standards Board (FASB) has issued new accounting standards, aimed at improving financial reporting by not-for-profit (NFP) companies. How does it affect your company? Here are some of the changes made by Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities:
- Decreases the number of net asset classes from three to two.
- One will be net assets with donor restrictions and the other will be net assets without donor restrictions.
- Continues to allow not-for-profit companies to choose between the direct method and indirect method for presenting operating cash flows.
- It eliminates the requirement for those who apply the direct method to perform a reconciliation with the indirect method.
- Requires new disclosures in the financial statements on the liquidity and availability of resources.
- NFPs are required to note how the organization manages liquidity and communicate the availability of financial assets to meet cash needs as of the date of the statement of financial position to meet cash needs for general expenditures within one year.
- The additional disclosures will include information about the availability of financial assets due to
- their nature;
- external limits imposed by donors, laws, and contracts and;
- internal limitations.
- Requires a statement of functional expenses, changing how expenses are reported.
- Expenses are required to be presented in both functional (according to purpose – i.e. program services and supporting activities) and
- natural classifications (economic benefits received from incurring expenses i.e. salaries, rent, professional fees, supplies, depreciation, interest, etc.).
- NFPs now need to disclose the methods used to allocate expenses to the functional categories.
- Requires reporting of the underwater endowments (endowments that have a current fair value that is less than the original gift amount) as part of net assets with donor restrictions. It also expands the disclosures about underwater endowments.
- NFP entities must now report investment expenses net, against investment returns. Previously, investment expenses could be reported net, or gross (in expenses). No disclosure of investment expenses is required.
To keep up with all the changes in the NFP environment, software companies have been focusing more than ever before on the not for profit industry. They are continuously updating their software for changes in the regulations and reporting requirements, as well as to keep their software current for advancements in the technical world. Most are trying to integrate the entire not-for-profit company’s needs into one complete software system.
Some of the updates that are appearing are:
- Mobile access for users
- Making the software easier to use
- Improved excel integration
- Improved Dashboards and KPIs
- Automated FASB reporting
- Simplified financial segmentation
- New bank integration
- Ability to e-mail contribution statements to donors
- Pledge tracking
- Donor management features
The amendments will be effective for fiscal years beginning after December 15, 2017 and for interim periods, if applicable, within fiscal years beginning after December 15, 2018. Initial adoption should be for an annual period or the first interim period within the year of adoption. Early adoption is permitted.