Important Changes in Nonprofit Reporting – Learn What You Need to Know

With a new year underway, it’s important for accounting and finance professionals in all long-term post-acute care (LTPAC) settings to be aware of reporting updates that may have slipped your mind while getting through year end. In 2016, The Financial Accounting Standards Board (FASB) issued a previously proposed update (ASU 2016-14) that will affect nonprofit entities. The time has now come to get familiar with the details of this update, as it is effective for fiscal years beginning after December 2017.

The new rules aim to simplify the presentation of net assets. Up until now, net assets classifications have been broken out into three categories: unrestricted, temporarily restricted and permanently restricted. When the new rule goes into effect Under the new reporting requirements, net assets will be classified as either “with donor restriction” or “without donor restriction.” By reducing the number of classification categories to two, FASB officials hope it will be easier for the users of the financial statements to understand the type of donation an entity is receiving throughout the year.  

Along with this reporting change, there is also a change to the Statement of Cash Flows. Entities now have the option to present their cash flow statements using either the direct or indirect method. If the direct method is the preferred choice, the indirect method reconciliation is no longer required.

Also with the classification change, there will be a change to the disclosure requirements. Initially, any reclassifications from this reporting update should be disclosed in the year it is first applied. The entities will still need to follow any restrictions that have been imposed by the donors and track the net assets accordingly. Board-designated restrictions will be classified as “without donor restriction,” as they were previously considered unrestricted. The amounts and nature of these designations must now be disclosed in the financial statements. These new disclosure requirements will provide more transparent information that will be helpful to any donors or creditors who may rely on the financials to make business decisions.

Although these changes will not have a material effect on the set of financials, it is still important to be knowledgeable on these changes. Typically, these financial reports are presented to the board and other decision makers, so company employees will need to be able to explain why the financial statements have a different look to help avoid any confusion the change may bring.

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