Nonprofit Revenue Recognition

Nonprofit Quick Tip: Change in Net Asset Classes

CPAs & Advisors

Jessica Rolfe
Jessica Rolfe CPA Principal CPAs & Advisors

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The new FASB ASU 2016-14, Presentation of Financial Statements of Non-Profit Entities, is now in effect for year-ends December 15, 2018, and later. One of the major changes with this standard is the change in classes of net assets to “without donor restrictions” and “with donor restrictions.” Not only does this standard change the look of the financial statements, but it also affects the organization’s policies and procedures. Nonprofits should ensure they have a net asset policy that reflects these updates.

The policy should document how contributions and grants are identified as having donor restrictions, how these items are recorded, how the restrictions are tracked, and how expenses are applied. The policy should also use the new terminology rather than the old unrestricted, temporarily restricted, and permanently restricted classifications. Keep in mind, the organization still needs to be able to segregate the donor-restricted items between those that are permanent and temporary.

Finally, the policy should address how the organization identifies restrictions that are received and met in the same fiscal year, whether they are recorded through “with donor restrictions” or “without donor restrictions.”

It’s also important to keep in mind any other policies that include net asset classification terminology so that these can be updated as well for the new standard.

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