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FASB Update 2016-14 Is Here –Are you prepared?James Halleran, CPA and Partner

February 8th, 2018


In use for over two decadesCurrent Model

August 2016– FASB issues final update on changes to not-for-profit reporting

model

Final Update on ChangesConsistency to all not-for-profits, regardless of entity type and structure

Key Goal

All not-for-profit organizations will be impacted by the proposed changes

Impact


What’s NOT changing?Proposed model does not change the manner in which revenue is recognized or expenses are reported.

Proposed ChangesSignificant changes to how activities are presented for a reporting period.Major impact to:• Statement of financial position• Statement of activities• Statement of cash flows• Functional expense • Notes to the financial statements


6 Key Changes

• Reporting of Expenses• Net Asset Classification• Liquidity• Cash Flow Statement• Underwater Endowments• Investment Return


Reporting of Expenses

• Natural Classifications• Functional Classifications


Exhibit 1


Net Asset Classification

Reduces the number of net asset classes from 3 to 2Statement of activities and financial position presented based on:

• Net assets with donor restrictions• Net assets without donor restrictions• See Exhibit 2


Exhibit 2


Net Asset ClassificationNet Asset and Donor Restriction Reminders

• Only a donor can make a restricted net asset• Donor intent and understanding • Board designated amounts should be disclosed

on the Statement of Financial Position or in the notes

• Still need to track separately restricted contributions to be maintained in perpetuity from those to be spent over time or for a particular purpose

• Set a rainy day policy


Organizations must disclose both quantitative and qualitative information related to the financial assets available to meet cash needs for general expenditures within one year

Liquidity


• Current Assets Less• Net assets subject to donor

restrictions• Board designated net assets• Net assets limited by the

nature of the asset (not realizable within one year)

Liquidity (continued)


Exhibit 3


Direct cash flow Preferred Method Indirect

reconciliation no longer required

Exhibit 4

Cash Flow Statement

Indirect cash flow Still allowed


Exhibit 4


Current ModelReduction in net assets without donor restrictions (unrestricted)

Underwater Endowments

New ModelReduction in net assets with donor restrictions.Exhibit 5:$3,500 gift value$3,300 current market value

$200 deficiency from unfavorable market fluctuations


Exhibit 5

Underwater Endowment Funds with Deficiencies: From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or 82 SPMIFA requires NFP B to retain as a fund of perpetual duration. Deficiencies of this nature exist in three donor-restricted endowment funds that together have an original gift value of $3,500, a current fair value of $3,300, and a deficiency of $200, as of June 30, 20XX. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new contributions for donor-restricted endowment funds and continued appropriation for certain programs that were deemed prudent by the Board of Trustees.


Investment Return

Old Model – Two Options• Net investment expenses

against investment income and present as net return in investment as a component of revenues

• Present investment expenses separate from investment income as a component of expenses


New Model• Net presentation as one

line item in the “Revenue and Other Support” section of the statement of activities is required

• Also eliminates the requirement to disclose the composition of investment return and the amount of investment expense

Investment Return


Questions?


James Halleran, CPAPartnerJames Moore, CPAs

[email protected]://www.linkedin.com/in/jameshallerancpa

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