Not-for-profit entities (NFPs) should be aware that ASU 2016-14 is required to be implemented for the year ended December 31, 2018, and the changes in this standard will have a significant impact on the presentation of NFP entity financial statements. While Tidwell Group provided an introductory article containing timely guidance regarding ASU 2016-14, Chris Bailey and Patty Azallion, Tidwell Group Principals, share additional insights and a few highlights of the major changes needed for effective implementation of the standard.
The main areas of financial statement presentation addressed in this standard are as follows:
- Net Asset Classifications
- Functional Expenses
- Operating Cash Flows
- Enhanced Financial Statement Disclosures
- Liquidity and Availability of Resources
“It’s the first major change to accounting standards for financial statement presentation for NFPs in more than two decades,” said Chris. “The main focus of the standard is to provide users of NFP financial statements with transparency,” he added. In an effort to provide such transparency, the standard:
- Enables NFPs to tell their financial story and provides useful and consistent financial statement information;
- Addresses complexity surrounding current net asset classifications;
- Discloses deficiencies in information about an organization’s liquidity and the availability of its resources; and
- Provides additional clarification regarding the lack of consistency in types of information provided.
Management has the responsibility to effectively communicate to its stakeholders the actions it undertakes to carry out the purpose of the NFP. To do so, ASU 2016-14 must be timely implemented. “The deadline to implement the standard and its updates is effective for fiscal years beginning after December 15, 2017, and it must be applied retrospectively. “NFPs should note that some exceptions apply to the retrospective application when presenting comparative financial statements,” said Patty. “We believe that the updated standard reduces complexities in reporting classifications of net assets and provides more useful disclosures regarding liquidity and financial performance. However, NFPs should consult with their professional accounting services provider for guidance on specific application of the updated standard.”