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FASB Issues Significant Nonprofit Accounting Update

Yesterday, the Financial Accounting Standards Board (“FASB”) issued its first major changes to nonprofit accounting in over 20 years. Published as Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities, the standard addresses how nonprofit organizations disclose their expenses and investments. The amendments are intended to benefit donors, lenders and other readers of financial statements by providing more insight about a nonprofit organization’s spending.

ASU No. 2016-14 will require additional disclosures on a nonprofit’s access to liquidity and any endowment funds that are under water. Other expected changes include the reclassification of net assets into those with and without donor restrictions, as opposed to using the unrestricted, temporarily restricted, and permanently restricted categories. Nonprofits will also have to provide an analysis of their expenses by function and nature.

The upcoming standard is the first phase of the FASB’s two-phase nonprofit project. The FASB plans to address the more controversial parts of the project during its second phase.

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