On Aug. 18, 2016, the FASB issued Accounting Standard Update 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The update was designed to improve existing standards, and is eligible to be tested on the CPA Examination in January 2018.
This guidance is the first major change to not-for-profit (NFP) financial statement presentation standards since 1993, and is a result of feedback from stakeholders that NFP standards could be improved to provide better information to donors, grantors, creditors, and other financial statement users. NFPs include but are limited to charities, foundations, private colleges and universities, nongovernmental health care providers, cultural institutions, religious organizations, and trade associations.
ASU 2016-14 improves the current net asset classification requirements, as well as the information presented in the financial statements and notes that is useful in assessing a not-for-profit’s liquidity, financial performance, and cash flows. Specifically, the following issues are addressed:
The ASU replaces the existing three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) with two new classes of net assets—net assets with donor restrictions and net assets without donor restrictions. NFPs will present:
The ASU also:
Information about liquidity and availability of resources
The ASU requires:
Presentation of operating cash flows
The ASU allows NFPs to continue to present the net amount of operating cash flows using either the direct or indirect method of reporting, while no longer requiring the presentation or disclosure of the indirect method reconciliation if using the direct method. This provides an opportunity for some NFPs to reduce costs and to present information about cash flows in a way that may increase the understandability and usefulness to financial statement users.
ASU 2016-15 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017. Accounting pronouncements are eligible to be tested on the CPA Examination in the later of (1) the first testing window beginning after the pronouncement’s earliest mandatory effective date or (2) the first testing window beginning six months after the pronouncement’s issuance date; ASU 2016-14 will become testable in January 2018.
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