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Not-For-Profit Accounting Rules Modified

The Financial Accounting Standards Board issued a new accounting standard last week (Accounting Standards Update No. 2016-14) with the goal of improving the financial reporting of not-for-profit entities.  The standard includes guidance related to the following:

  • Net assets will now be reported in two categories (net assets with donor restrictions and net assets without donor restrictions) instead of three as historically required (unrestricted, temporarily restricted, and permanently restricted)
  • Requires reporting of and additional disclosures for underwater amounts of donor restricted endowment funds
  • Allows preparers to continue to choose between the indirect and direct method of cash flows
  • Requires not-for-profits to provide qualitative information in the notes to the financial statements about how liquid available resources are managed and liquidity risks.  The goal is to provide information regarding the availability of an entity’s assets to meet cash needs for general expenditures and obligations
  • Requires reporting of expenses by function and nature, as well as an analysis of expenses by both function and nature

The new standards are effective for years beginning AFTER December 15, 2017 and although the effective date is not immediate, it is important to understand the changes that will be made to your financial reporting.  We recommend you share this information with the financial statement users of your organization and as always, please contact us if we can be of assistance as you transition to the new guidance.