Nonprofit & Government Times, Q3 2018

Financial Statements of Not-for-Profit Entities , to address these areas.

restricted net assets. This change was much needed following the issuance of the Uniform Prudent Man- agement of Institutional Funds Act (UPMIFA), which allowed nonprofits to prudently spend the principal of their permanently restricted net assets, therefore no longer permanently restricting the assets. To enhance the information regarding net assets without donor restrictions, the ASU will require nonprofits to disclose the amounts and purposes of governing board designations that result in self-im- posed limits on the use of resources at the end of their reporting period. This can be accomplished by showing the board-designated amount as a compo- nent of the net assets without donor restrictions on the statement of financial position and a footnote describing the purposes for these resources. Although not required, nonprofits with a significant amount of “brick and mortar” that is not available to meet current obligations should consider adding another component (net investments in property and equipment) to their net assets without donor restrictions. While some nonprofits may not have all of these categories within their net assets, here is an example of how the net asset section on the statement of financial position can look:

These new financial reporting standards take effect for all nonprofits with fiscal year-ends of December 31, 2018 and thereafter. The amendments in this update should be applied on a retrospective basis in the year that the update is first applied.


A key change to the financial statements of nonprofits found in ASU 2016-14 is the overall improvement and clarification of the descriptions of the three net asset classes: unrestricted, temporarily restricted, and permanently restricted net assets. In the past, the meaning of unrestricted net assets was often misinter- preted. Though unrestricted net assets meant only that there were no donor restrictions, potential legal restrictions or internally designated board restrictions within the unrestricted net assets would result in the net assets not being available to meet obligations. To combat the confusion, FASB now requires that net assets be classified as either net assets with donor restrictions or net assets without donor restrictions .

Net assets with donor restrictions will now include both the temporarily restricted and permanently



xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

Designated by the Board for ____ purpose Designated by the Board for endowment

Invested in property or equipment, net of related debt

Total net assets without donor restrictions

WITH DONOR RESTRICTIONS Purpose restrictions

Time-restricted for future periods

Perpetual in nature (Donor-restricted endowment)

Underwater endowments

Total net assets with donor restrictions




Nonprofit and Government Times

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