The Financial Accounting Standards Board (FASB) has released the first phase of substantive revisions to the basic financial reporting model of nonprofit organizations, the first such revisions in 23 years.
The new revisions apply to all nonprofits that file financial statements in accordance with generally accepted accounting principles and aim to improve transparency, streamline existing processes, and give a clearer picture of organizations’ financial positions. While the new rules are not a drastic departure from current procedures, they do set some new requirements for nonprofits.
Specifically, these include:
- The clear disclosure of the extent to which a balance sheet is comprised of financial assets, along with the extent to which those assets can be converted to cash within one year, and limitations that would preclude their current use;
- An explanation of whether limitations on use of funds are externally imposed by contracts, donor stipulations or legal or regulatory requirements, or imposed by a governing board and therefore capable of being reversed by board action; and
- The replacement of the current three net asset categories with two new ones, “with donor restrictions” and “without donor restrictions.”
The rules become effective for calendar year 2018, but can be applied to financial statements covering periods as early as June 2016 if organizations choose to do so.
Source: BNA Daily Tax Report (subscription required)