The Financial Accounting Standards Board (FASB) has issued the first major set of changes to not-for-profit financial statement reporting in more than 20 years. Presentation of Financial Statements of Not-for-Profit Entities (ASU 2016-14), issued in 2016, establishes a new protocol for not-for-profit organizations in classifying net assets and preparing financial statements. The goal is to provide better information to donors, grantors, creditors, and other users of financial statements.

Key ProvisionsThe provisions of ASU-2016-14 are effective for annual financial statements issued for fiscal years beginning after December 15, 2017 and for interim periods within fiscal years beginning after December 15, 2018. The first part of a two-phase project, the guidance calls for the following:

• Improved presentation and disclosure for net asset classes Three existing classes of net assets will now become two: net assets without donor restrictions and net assets with donor restrictions. Organizations will still need to disclose the nature and amounts

PRESENTATION OF FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ENTITIES (ASU 2016-14)

of all donor imposed restrictions. However, under the new guidance, they will now need to disclose the amounts and purpose of all board designated net assets.

• Enhanced information on liquidity and availability of financial resources To provide financial statement users with a better understanding of a not-for-profit entity’s exposure to liquidity risk and how it manages its liquid available resources, organizations must provide both quantitative and qualitative information. This information will communicate the availability of financial assets to meet cash needs for general expenditures within one year of the statement of financial position date. This may be among the most challenging of the newly required disclosures.

• Enhanced information on expenses and expense allocation All NFPs will be required to present expenses by function and by natural classification. This information must be shown in one location, either all in the notes or all on the face of the financial statements. NFPs will also be required to provide qualitative disclosures about the methods used to allocate costs among program and support functions.

Gain InsightFor more information on ASU 2016-14 and to proactively prepare for implementation, please contact Kelly Frank, Partner and Not- for-Profit and Education Industry Practice leader, at 973-403-7999 or kelly.frank@cohnreznick.com, John Alfonso, Partner, Not-for- Profit and Education Industry Practice at 646-254-7415 or john.alfonso@cohnreznick.com, or Catherine Syslo, Director, Quality Control, at 862-245-5024 or catherine.syslo@cohnreznick.com.

• Enhanced reporting of investment return Net presentation of investment expenses against investment income will be required on the face of the statement of activities.

• Continued allowance of a choice between direct and indirect method of reporting operating cash flows NFPs may continue to present cash flows using either the direct or indirect method. However, they will no longer be required to present the indirect method reconciliation if the direct method is used.

• Revised classification of underwater endowments For “underwater” donor-restricted endowment funds (i.e., the fair value is less than the original gift amount or amount required to be maintained), the accumulated losses will be included together with that fund in net assets with donor restrictions. The fair value of the underwater funds, the original endowment gift amounts, and the amounts of the deficiencies of the funds must be reported.

Implementation ServicesNFP executives should begin educating their organizations’ key stakeholders―board members, bankers, and donors―about ASU 2016-14. CohnReznick’s Not-for-Profit and Education Industry practice professionals can provide your organization with a range of pre-planning, training, and implementation services to help you meet the compliance deadline for the new standard. Our services include:

• Training that is customized for your personnel on all key aspects of the new standard

• Assisting your organization’s management in developing a comprehensive implementation strategy

• Assisting your management in drafting pro-forma financial statements

• Reviewing and recommending changes to your management’s pro-forma financial statements

• Evaluating and assisting your organization in preparing the requisite disclosures pertaining to liquidity

About CohnReznickCohnReznick LLP is one of the top accounting, tax, and advisory firms in the United States, combining the deep resources of a national firm with the hands-on, agile approach that today’s dynamic business environment demands. With diverse industry expertise, the Firm provides companies with the insight and experience to help them break through and seize growth opportunities. The Firm, with origins dating back to 1919, is headquartered in New York, NY with 2,700 employees in offices nationwide. CohnReznick is a member of Nexia International, a global network of independent accountancy, tax, and business advisors. For more information, visit www.cohnreznick.com.

CohnReznick LLP © 2017This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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