Insights: Article

ASU 2016-14 Implementation Concerns and Challenges

By Tim McCutcheon

April 17, 2018

Eide Bailly has held numerous client trainings, meetings, and conversations with nonprofit entities to assist them with the implementation of FASB ASU 2016-14, Not-for-Profit Entities (Topic 958) – Presentation of Financial Statements of Not-for-Profit Entities. During the course of those meetings we have identified the issues, observations, and concerns most prevalent as voiced by CEOs, CFOs and Controllers:

  • The newly required expanded disclosures relating to board-designated funds will require a robust review of such designations and potentially lengthy discussions at the board level about the purposes and uses of the funds and how funds may be designated and undesignated.
  • Most CFOs accept the new liquidity disclosure requirements as an opportunity for the nonprofit to “tell its story,” but at the same time, the narrative required by the standard will take time to develop and be approved by management, the audit committee, and perhaps even the executive committee.
  • Many nonprofits will be presenting their functional allocation detail for the first time and plan to take a fresh look at their allocation methods to ensure they form the basis for the most accurate presentation. Reviewing and adjusting the necessary labor, space, utilization and other allocation factors can be a time-consuming process. In addition, those who plan to push through these new allocations to internal project reports may discover that several meetings are required before project managers are comfortable with newly allocated costs.
  • On the surface, the change in reporting net investment return appears simple. However, CFOs have voiced concerns over how to accurately allocate their time and the time of others involved in supervising the strategic and tactical activities involved in generating investment return (direct internal investment expenses) to determine and report their net investment return.
  • Given the relative infrequency of audit committee meetings, consideration must be given to the extended lead times needed to create or update various board policies, such as those covering:
    • Designation and undesignation of net assets
    • Continuation/reduction/cessation of distributions from underwater endowments
    • Inclusion/exclusion of purpose-restricted financial assets in amounts available for expenditure within one year in the entity’s liquidity and availability disclosure

It is important to note that not all facets of implementation plans are negative! Some nonprofits are using their implementation project to delve into legacy board-designated and donor-restricted net assets with a goal of carefully evaluating the restrictions of long-time funds to determine once and for all the accuracy of the restrictions that have been carried forward over the years. Some nonprofits are also considering whether the direct method of presenting their statement of cash flows would better inform funders and other users of the factors that truly drive their operating cash flows.

Eide Bailly can assist you with all facets of your organization’s implementation of this new standard. Please call a member of your Eide Bailly team today or visit our website to find someone to who can assist.

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