Knowledge & Opinions
02 Dec 2016

USA: New financial reporting standards for non-profit organisations

The Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) 2016-14 affecting non-profit organisations. MSI's Washington D.C. accounting member Rubino & Company explains more.

The ASU is intended to update, not overhaul, the current financial statement model to improve information presented in the financial statements and notes about financial performance, cash flows and liquidity. Net Asset Classes The new standard reduces the number of net asset classes from three to two. Unrestricted net assets, including board designations, will be presented as Without Donor Restriction. Temporarily Restricted and Permanently Restricted net assets will be combined and presented as With Donor Restrictions. Disclosure requirements include explaining the composition of net assets with donor/grantor restrictions, emphasising how and when resources can be used, i.e. the specified purpose and time restrictions. Regarding board-designated net assets, the organisation must disclose the nature and amounts of board-designations, and summarise the organisation's policies and/or practices surrounding board designations. Underwater Endowments For any underwater endowment, the organisation must disclose the current value of the fund, the original gift amount, and the net loss. The entire balance of the endowment must be reported within the With Donor Restrictions class of net assets. This is a change from current practice under which the original amount is reported as permanently restricted while the underwater amounted is included as unrestricted. In addition, disclosures must include the organisation's interpretation of the ability to spend from the underwater endowment, and the organisation's policies and actions taken during the period concerning appropriation from underwater funds. Donations of Property and Equipment Regarding donations of property and equipment, or contributions restricted for their purchase, the option to release the donor-imposed restriction over the estimated useful life of the asset has been eliminated. The placed-in-service approach, whereby the amounts are reclassified from With Donor Restriction to Without Donor Restrictions when long-lived assets are placed in service, must be followed. Read more about New financial reporting standards for non-profit organisations

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