It is crucial for your financial management for nonprofits team to stay up-to-date on FASB standards. There is an update on FASB ASU 2016-14 that nonprofits should fully understand in order to follow and comply with the latest accounting standards updates.
FASB ASU 2016-14: Net Asset Classification Updates
The most prominent change from FASB ASU 2016-14 is how net assets are being reported and disclosed. The ASU now has net assets categorized in two categories, instead of three.
The two new categories are:
- Net assets with donor restrictions
- Net assets without donor restrictions
The above two categories replace the current three categories below:
- Temporarily restricted
- Permanently restricted
With this update, financial statements and how net assets are classified will be affected. The reason for the change in categories is mainly to help lower the complexity and increase nonprofits’ understanding of financial statements. An important question to ask your financial management for nonprofits team is if your organization has already updated the statement of financial position and statement of activities to change the net asset categories. These changes need to update the old categories to the new categories of net assets with donor restrictions and net assets without donor restrictions. If you have not already done so, you may wish to update these areas sooner versus later.
Review the Notes to the Financial Statements
Your financial management for nonprofits team needs to review the notes to the financial statements. “Temporarily restricted” and “permanently restricted” need to be replaced with “net assets with donor restrictions” and “net assets without donor restrictions.”
Nonprofits Can Further Break Down the Two Net Asset Categories
As a nonprofit, if you feel that you still need more clarity and specifications in your net asset categories, you have the option to further break down the two net asset categories in your financial statements. As an example, your nonprofit may decide it is best to further break down their net assets with donor restrictions if there is one category which is expected to be maintained for an infinite amount of time and a category expected to be spent over time or for a specific purpose. It is still important to remember that each category of net assets and total net assets needs to be reported in your financial statements.
ASU Requires Enhanced Disclosures
It should also be noted that the ASU will require enhanced disclosures to be reported at the end of the period for the purposes and amounts of your nonprofits’ governing board’s designations, appropriations, and any other similar actions that result in self-imposed restrictions.
Another aspect that will be required is the placed-in-service approach when releasing restrictions related to long-lived assets. In the past, there was an option to imply a time restriction and release that same restriction over an asset’s useful life. However, this is no longer permitted, unless it is stated in a clear and detailed manner by the given donor.
If you are still confused, please take the time to read and learn more about ASU 2016-14 and the Recent Changes in Financial Management for Nonprofits: ASU 2016-14.
RBP Methods provides accounting software, advice, and consulting in financial management for nonprofits. Our financial management systems include software such as Abila MIP Fund Accounting™ and AccuFund Accounting Suite. These and other software solutions for nonprofit organizations provide easy to use, understandable, and useful software to track finances for nonprofits, manage donations, donor campaigns, and much more. Contact us or call 503-648-9051 for a consultation.