The Financial Accounting Standards Board issued an Accounting Standards Update that simplifies and improves how a not-for-profit organization classifies its net assets, as well as the information it presents in financial statements and notes about its liquidity, financial performance and cash flows.

The ASU requires improved presentation and disclosures to help not-for-profits provide more relevant information about their resources (and the changes in those resources) to donors, grantors, creditors and other users. These include qualitative and quantitative requirements in the following areas:

• Net Asset Classes
• Investment Return
• Expenses
• Liquidity and Availability of Resources
• Presentation of Operating Cash Flows

Throughout the project, the FASB conducted extensive outreach with diverse groups of stakeholders and received more than 260 comment letters on the 2015 Exposure Draft.

“While the current not-for-profit financial reporting model held up well for more than 20 years, stakeholders expressed concerns about the complexity, insufficient transparency and limited usefulness of certain aspects of the model,” said FASB Chair Russell G. Golden.

“The new guidance simplifies and improves the face of the financial statements and enhances the disclosures in the notes—which will enable not-for-profits to better communicate their financial performance and condition to their stakeholders while also reducing certain costs and complexities in preparing their financial statements,” Golden added.

The amendments in the standard are effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Application to interim financial statements is permitted but not required in the initial year of application. Early application of the amendments in this update is permitted.