As discussed in Part 1, by simplifying the financial statements, and by enhancing disclosures (footnotes), the FASB ASU 2016-14 changes will enable not-for-profit organizations to provide a more accurate and complete financial picture. The distinction between permanent restrictions and temporary restrictions had blurred over time by changes and as a result, had become less useful on the face of financial statements.
By reducing the number of classes of net assets that must be reported on the face of financial statements, especially the statement of activities, it will help reduce complexity, increase understandability, and enable greater use of multi-period comparative financial statements that can provide donors, grantors, creditors, and other stakeholders with information useful in identifying and assessing key trends.
Part 2 of Understanding. Preparing. Implementing. FASB ASU 2016-14 Reporting Requirements for Not-For-Profit Organizations will:
1) Analyze the changes in each financial statement. Helpful Hint: We recommend printing your audit statements to make it easier to compare and take notes.
2) Review typical chart of account changes needed to facilitate the new reporting.
3) Assess the accounting that may be needed in day-to-day and/or year-to-year processes.
4) Review the footnote changes that will be required. While many auditors prepare these for their clients, it’s smart to think them through and own the process.