ASU No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, is effective for fiscal years beginning after December 15, 2017. With limited exceptions, the amendments in ASU No. 2016-14 are required to be applied on a retrospective basis in the year that ASU No. 2016-14 is first applied. A retrospective application entails the application of a different accounting principle to one or more previously issued financial statements, or to the statement of financial position at the beginning of the current period, as if that principle had always been used. Thus, not-for-profits will need to reclassify the opening balances of net assets.
When converting the net asset amounts under the FASB No. 117 model to the amounts under ASU No. 2016-14, not-for-profits have three key considerations.
- The first consideration is the new net assets classifications. When applying the new net assets classifications keep in mind that: (1) unrestricted net assets are being renamed net assets without donor restrictions; and (2) temporarily restricted net assets and permanently restricted net assets are being renamed net assets with donor restrictions.
- The second consideration is the elimination of the implied-over-time approach for presenting the expiration of restrictions on capital assets where the donor did not specify a time period over which the asset must be used. This change may require the reclassification of amounts that were previously included in temporarily restricted net assets to be reflected in net assets without donor restrictions.
- The third consideration relates to changes in the presentation of underwater endowment funds. Under ASU No. 2016-14, if a donor-restricted endowment fund is an underwater endowment fund, the accumulated losses are included together with that fund in net assets with donor restrictions. This change may require the reclassification of amounts that were previously included in unrestricted net assets to be reflected in net assets with donor restrictions.
Interested in learning more? Sign up for The Essential Course for Preparing Not-for-Profit Financial Statements Under ASU No. 2016-14.
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. Charlie has over 25 years of experience in auditing and industry having worked at KPMG, the Texas Society of CPAs, Taylor Publishing, Texas Wesleyan University, and the AICPA.