ASU 2016-14 functional expense allocations
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ASU 2016-14 functional expense allocations

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On August 18, 2016, the FASB issued Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The amendments in this ASU are intended to improve financial statement presentation by not-for-profit (NFP) organizations—a model that has existed for more than 20 years.

The new guidance will affect substantially all NFPs, including charities, foundations, private colleges and universities, nongovernmental health care providers, cultural institutions, religious organizations, and trade associations, among others, and requires NFPs to improve their presentation and disclosures to provide more relevant information about their resources (and the changes in those resources) to their donors, grantors, creditors, and other users.

There are qualitative and quantitative requirements in a number of areas, including net asset classes, investment return, expenses, liquidity and availability of resources, and presentation of operating cash flows. Practitioners and their NFP clients will need to be especially mindful of the enhanced and additional disclosures required by this ASU.

The changes included in this ASU present an opportunity for NFP organizations to re-evaluate how they perform a variety of tasks and functions, which should include how expenses are presented and allocated on their financial statements.

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