This is the first in a series of posts we have prepared regarding ASU 2016-14 and its impact on endowment related reporting. Stay tuned for the rest of the series! To view the other parts, click here: ASU 2016-14 Series
Have you heard the news? Back in August of 2016 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update number 2016-14 (ASU 2016-14). This update touches on a variety of key areas in the not-for-profit world. Today I’m going to focus on how the ASU impacts the endowment presentation on your financial statements.
The time is now! This ASU is effective for annual financial statements issued for fiscal years beginning after December 15, 2017. So, if your fiscal year ends 6/30, the first year after 12/15/17 would be a fiscal year 7/1/18-6/30/19 aka FY19.
One of the key changes in endowment reporting is the presentation of net assets. Traditionally we broke our net assets into three classes: permanently restricted, temporarily restricted and unrestricted. The new standard now streamlines the net asset classes into two; with donor restriction and without donor restriction. Your perm and temp assets are being consolidated into the with donor restriction net asset class and your unrestricted assets will remain standalone as without donor restriction.
In addition, there are changes to the net asset classification of underwater amounts of donor-restricted endowment funds. Previously these amounts were classified as unrestricted, now you will group them as with donor restriction and list additional disclosures in your footnotes regarding underwater amounts. Additionally, you must disclose the amount and purpose on your board designated net assets.
NFPs will be required to do a retroactive presentation in the first year of presentation on the financial statements. Whether you think the new standards will simplify your life or make it more complex, the changes are here to stay. Now remember, according to the FASB Chair Russell Golden, the update was intended to reduce costs and complexities in preparing financial statements. Maybe remind your audit team of this as well!
For more information check out: https://asc.fasb.org/
In a later blog post we will discuss how ASU 2016-14 impacts underwater funds, liquidity and available resources, expenses and investment returns!