By: William Bauder, CPA, CGMA, CITP, Manager of Assurance and Advisory Services 

We have blogged before about the new accounting standard that have come to pass for Not-For-Profit organizations in regards to accounting and their financial statements.  The Financial Accounting Standards Board (FASB) issued a new accounting standard in August 2016. The change was a major one for the not-profit community, as it was the most meaningful change made to the FASB’s current guidelines since 1993. After nearly a quarter century of doing things one way, not-for profits now have to adhere to the new standard that changes the disclosure and presentation requirements for financial statements. This new standard is designed to assist not-for-profits in sharing more detailed and relevant information with everyone from donors to creditors and everyone in between that may review their financial statements. According to the FASB, the new standard simplifies and improves the face of the financial statements for not-for-profits and enhances the disclosures in the notes.

• The new standard is effective for fiscal years beginning after 12/15/2017 (effective for 2018 financial statements). Let’s take a look at the main provisions to the standard:
• There are no longer three classes of new assets, now only 3 remain.
• It is now permissible to present the cash flow for the organization using the direct of indirect method.
• Organizations are no longer required to disclose investment related expenses.
• Enhanced disclosures now exist as they relate to:

           Board or self-imposed restrictions-

           Donor restrictions

           Cash management

          Cost allocation methods

          Underwater endowment funds

          Expense classification by natural and functional classification

As someone who works with Not-For-Profits daily, I believe the biggest change maybe be for those entities that were never previously required to present a statement of functional expenses.  Difficulties or questions we expect to hear would be related to determining how to do this; how to set up a chart of accounts to accomplish this; and how to determine reasonable basis’ for allocation methods. 

Currently, a statement of functional expenses is only required for health and welfare organizations.  Although, most organizations that do not meet this definition for financial reporting, still must break down expenses in this way for presentation on their 990.  This is only the case for 501(c)(3) and 501(c)(4) organizations, however. 

Please contact us today with any questions you may have about the new standard. We would be happy to assist you.