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This is the second 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

In August of 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-14 (ASU 2016-14). This update touches on a variety of key areas in the not-for-profit world. Today’s topic looks at how this update impacts the reporting of expenses and investment rate of return.

Reporting of Expenses:

  • Changes in Presentation:
      • Report expenses, either on the face of financial statements or in the footnotes, by:
        • Function (program, management, fundraising) – as currently required
        • Nature (salaries, fringe, occupancy, etc.) – similar to the tax return approach
        • Conduct or direct supervision will now be the standard to allow for allocation
  • Changes in Disclosure:
      • Will require further disclosure about methods used to allocate costs among program and support functions

Reporting of expenses by nature and function will add useful information to aid in the understanding of the costs of services provided.  The new format is intended to show how the related resources are allocated and the degree to which the expenses are fixed or discretionary. 

 Investment Return: 

  • Changes in Presentation:
      • Netting investment expenses against investment return on the face of the Statement of Activities is required; items to be netted includes:
          • Income
          • Realized & unrealized gain/loss
          • Less external and direct internal investment expenses
  • Changes in Disclosure:
      • Disclosure of investment expenses is no longer required; the new approach is meant to eliminate inconsistencies of the amounts being reported across organizations
      • Disclosure of investment return by interest, dividends, realized gain/loss, and unrealized gain/loss is no longer required 

These changes are meant to provide a more comparable measurement of investment return across not-for-profit organizations regardless of who is managing those investments, or the type of vehicle in which the funds are invested.