Nonprofits Face New Requirements in Financial Statements

Nonprofits will need to change the way they report information about net assets, expenses, and other items in annual financial statements in fiscal years starting in 2018, the Financial Accounting Standards Board announced Thursday.

The changes mark the first time that the board, a private organization, has made significant updates to its standards in more than two decades, officials said. The changes are meant to simplify some items in the statements and make information clearer for creditors, grant makers, auditors, and others who review the documents, according to the board, which is responsible for establishing accounting and reporting rules that nonprofits follow in their financial statements.

Annual financial statements provide information about a charity’s revenue, expenses, assets, and other financial figures and provide notes on the numbers. Such documents are not required by federal law but are required by many states, creditors, and grant makers. The standards will go into effect for reporting on interim periods within fiscal years starting after Dec. 15, 2018.

Assets and Endowments

Among other requirements announced by the board, nonprofits will have to provide additional disclosures about how they allocate expenses and will need to change the way they report net assets.

Nonprofits will also need to:

• Report more and clearer information concerning resources available to make general expenditures.
• Provide additional information about endowments whose values fall below the original gift amount.
• Classify net assets in two categories: those with donor restrictions and those without donor restrictions. This change replaces vague and confusing definitions surrounding unrestricted, temporarily restricted, and permanently restricted assets currently in use, according to the board.