Throughout 2019, not-for-profit entities (NFPs) are implementing ASU No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. ASU No. 2016-14 allows flexibility in how and where certain information is presented. Recently, I reviewed the audited financial statements for 20 NFPs which have implemented ASU No. 2016-14 to see the choices they are making.
NFPs are now required to report information about expenses by function and nature in one location either: [1] on the face of the statement of activities; [2] as a schedule in the notes; or [3] in a separate financial statement (e.g., a statement of functional expenses). In the financial statements I reviewed, 85% of NFPs were presenting a statement of functional expenses; 5% were presenting this information in the notes; and 10% were erroneously not presenting the information at all.
NFPs now provide information about the nature and amounts of different types of donor-imposed restrictions either by: (1) reporting their amounts on the face of the statement of financial position; or (2) including relevant details in the notes. In the financial statements I reviewed, 20% of NFPs were presenting this information on the statement of financial position; and 80% were presenting this information in the notes.
NFPs now disclose the amounts and purposes of board-designated net assets either on the face of the statement of financial position or in the notes. In my review of the selected financial statements, 20% of NFPs were presenting this information on the face of the statement of financial position; and 80% were utilizing the notes (or they had no designations).
ASU No. 2016-14 made the direct method of preparing the statement of cash flows a little easier in an attempt to sway NFPs from using the indirect method. However, in the financial statements I reviewed, 90% of NFPs were still using the indirect method (which is allowed); and only 10% were using the direct method.
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Charlie Blanton, CPA is the Senior Director of Governmental and Nonprofit Content for Surgent CPE, where he authors Surgent’s government and not-for-profit CPE courses and is a frequent webinar instructor.
