A quick look at new FASB reporting rules for Nonprofits

The FASB (Financial Accounting Standards Board) has issued a new rule that affects reporting requirements for nonprofit organizations.

Confused about this new requirement and how it will affect your organization? Read on.......

The new Accounting Standards Update can be referred to as ASU 2016-14. It was released in August of 2016 and is designed to take effect for the calendar year 2018 or the fiscal year 2019.

The intent of the ruling is to help key stakeholders in any nonprofit (ie, board members, donors, or other institutions that offer financial support) to have fuller understanding of the nonprofit’s financial statements in order to make better decisions. This ruling impacts the presentation of financial disclosures that organizations generally make.

In general, the new reporting requirement is for nonprofit board reports to show the Liquidity and Availability of assets to cover future expenses. This means that in the audit statements, boards must now present a financial report that is forward-looking and focused on the financial balances as they relate to future needs. The report must show what balances at the end of the reporting period will be available to support expenses one year out for the organization.

There are two aspects of the reporting requirement, Qualitative and Quantitative.

Qualitative in that an organization must describe in words the liquidity of its finances. This means that you must describe what cash or cash equivalent assets the organization has available. Boards that have already developed a policy about asset usage for operating expenses can use such policy in the report.

Quantitative in that an organization must show, in amounts, those assets that are available for operating expenses in the coming one year.

If a report includes a two-year comparison, both years must include this information, meaning that a 2018 report must also have 2017 data included with the new requirement.

To prepare for the new regulation, communicate with your nonprofit accountant and/or your