In 2016, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-For-Profit (NFP) Entities. This comes after nearly 20 years with the current reporting model for nonprofits.
One of the significant changes impacting nonprofits is the required disclosure of board-designated net assets. Many organizations’ boards designate a portion of unrestricted net assets for a particular purpose, including construction of a building or long-term capital projects. Under the new ASU, nonprofits would also be required to disclose information about the amounts and purpose of board-designated net assets without donor restrictions. Currently, there are no required disclosures about these funds, except as they pertain to endowment funds. The proposed Standard requires disclosures for all board-designated funds, including those earmarked for specific future programmatic expenditures, such as for the acquisition or construction of a building.
As your organization begins to prepare in 2017 for the effective date of this ASU in 2018, make sure board approval and the related spend for board-designated net assets is well documented to meet the new disclosure requirements.