FASB’s Not-for-Profit Advisory Committee determined that existing standards for financial statements of Not-for-Profit entities could be improved to provide more useful information to donors, grantors, creditors, and other users. The update is effective for years beginning after December 15, 2017. If your organization has a calendar year-end, you’ll be required to present financial statements under the new requirements this year and fiscal year-end organizations will present the new financial statements next summer! Find out what changes were made:

This Accounting Standards Update (ASU) aims to enhance not-for-profit financial statements and disclosures by providing users more detailed information. The ASU makes changes or improvements to the following financial statement presentation items and disclosures:

  • Net Asset Presentation and Disclosures
  • Underwater Endowments
  • Liquidity and Availability Disclosures
  • Functional Expenses
  • Investment Expenses
  • Statement of Cash Flows

This article will address the new presentation items for net asset presentation and underwater endowments. If the organization’s financial statements show comparative statements, these changes will apply retrospectively to all periods shown in the financial statements.  In our next article, we will address the changes related to liquidity and availability, functional expenses, investments, and the statement of cash flows.

Net Asset Presentation and Disclosures

Currently, not-for-profit financial statements show three classes of net assets on the statement of financial position:

  • Unrestricted
  • Temporarily restricted
  • Permanently restricted

Under the new ASU, organizations will only show two classes on the statement of financial position:

  • Net assets without donor restrictions
  • Net assets with donor restrictions

Unrestricted net assets will now be shown as “net assets without donor restrictions”. Temporarily restricted and permanently restricted net assets will be combined into a single line item shown as “net assets with donor restrictions”.

The ASU does not eliminate the organization’s responsibility to track donor restrictions. The organization will still need to keep accurate and complete records of donor restrictions to comply with the donor’s wishes and to provide the necessary footnote disclosures. The organization’s footnotes will need to disclose the dollar amount and restriction associated with the amounts shown on the statement of financial position as “net assets with donor restrictions”. Organizations will also disclose any board designations of the organization’s “net assets without donor restrictions.”  The disclosure will include both the amount and purpose of designation.


Underwater Endowments

Not-for-profit organizations often receive contributions for the continual support of the organization in the form of an endowment. Due to market fluctuations, an endowment can become “underwater”. An “underwater” endowment occurs if the current fair value of the endowment is less than the original donor gift. Currently, the “underwater” amount is shown as a reduction of unrestricted net assets. Under the new standard, the “underwater” portion will now be included in net assets with donor restrictions.

The following endowment disclosures are also required to be shown in the notes to the financial statements.

  • Aggregate amounts of underwater funds
  • Original gift amounts
  • Board spending policy

Stay tuned for our next article, where we will explore more changes affecting not-for-profit organizations. Feel free to contact the TDT nonprofit professionals with questions you may have about the new accounting standard.