On August 18, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-14 “Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.” ASU 2016-14 requires a number of changes to the financial statements of NFPs.
This article is the tenth, and final, in a series discussing the changes required by ASU 2016-14. In this article, we discuss the effective date of ASU 2016-14 and considerations for the year of transition.
ASU 2016-14 is effective for fiscal years beginning after December 15, 2017, and interim periods beginning within fiscal years following December 15, 2018. In other words, the requirements of the new ASU must be applied to the year-end financial statements of the calendar year-end 2018, or fiscal years ending in 2019. Early adoption is allowed for NFPs that choose to do so. We will provide guidance regarding early adoption later in this article.
In the year of adoption, a NFP must apply all of the applicable provisions of ASU 2016-14. The provisions must be applied on a retrospective basis, which means that the opening balances must be restated for any changes the new ASU causes.
For example, NFPs that have implied a time restriction on gifts of property and equipment, but can no longer do so under the new ASU, will need to restate the opening balances of net assets. They will need to do this to move the time restricted balance from net assets with donor restrictions, to net assets without donor restrictions (note: Part 5 in this series discusses this topic in more detail).
If the NFP presents a comparative financial statement (presenting both the current and prior years) in the year of adoption, they must restate the prior year’s financials to apply the provisions of the new ASU. However, in the year of adoption, a NFP that presents comparative financial statements has the option to omit the following information for the prior period:
- Disclosures about liquidity and availability of resources, and
- Analysis of expenses, by function and nature, if the NFP was not required to present a statement of functional expense prior to the adoption of the new ASU. In other words, this omission is not available for NFPs that are voluntary health and welfare organizations. See Part 6 in this series for more details.
Note that the above two omissions are only allowed for the prior periods’ information and are not applicable to the current period. Further, this optional omission is allowed only in the year of adoption and may not be utilized in subsequent periods.
In the year of adoption, NFPs are also required to disclose the nature of any reclassifications, or restatements. They must then disclose how adopting the new ASU affects changes in the net asset classes for each period.
NFPs are permitted to apply the provisions of ASU 2016-14 early before the required effective date. If a NFP chooses early adoption, that NFP must apply all of the transition considerations described in the section above. The NFP may not choose to adopt only some provisions of the new ASU early; they must adopt all of the provisions at the same time.
Want to Learn More?
This article is the last in a series on the key changes required by ASU 2016-14. Please refer back to the prior articles for more details about all of the key changes in this new standard. Please contact your Clark Nuber service team, or Andrew Prather, if you would like to discuss how these changes will impact your NFP’s financial statements.
Additional articles in this series are as follows:
© Clark Nuber PS and Developing News, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.