You have likely attended training sessions and read transcripts of Accounting Standards Update 2016-14 (the ASU), Presentation of Financial Statements of Not-for-Profit Entities, and are either early adopting now or are preparing to adopt the ASU when it becomes effective. The ASU will also have an impact on the way certain financial information is reported in Form 990s.
The most obvious impact is related to the reporting of net assets and the presentation of such on the Form 990, Part X Balance Sheet. Once adopted, the ASU will replace the historical three classes of net assets (unrestricted, temporarily restricted or permanently restricted) with two classes (net assets without donor restrictions or net assets with donor restrictions). This change to net asset presentation permeates the Form 990 with the largest number of reporting variances occurring on Schedule D, Supplemental Financial Statements, which contains detailed reporting on endowment funds.
The ASU will also require presentation of expenses by both function and nature. While many organizations have previously had to report this information in Form 990, Part IX, Statement of Functional Expenses, the ASU provides many examples on how to properly classify expenditures. Organizations should review their current allocation process as they work through the ASU implementation.
On May 7, 2018, the AICPA’s Exempt Organizations Taxation Technical Resource Panel (the Panel) sent a letter to Margaret Von Lienen, Acting Director, Exempt Organizations, Internal Revenue Service, respectfully requesting updates to the Form 990 to align with the ASU. The letter recommended specific updates to the Form as well as the issuance of timely guidance and methodology for completing the Form 990 by those nonprofits who have adopted the ASU. The letter also provided recommended changes to the instructions for Form 990 and Schedule D to reflect the changes resulting from the ASU in the event the Form 990 is not changed.
The Panel’s letter also contained numerous recommendations for corrections to the Form, clarifications within the glossary, and instructions that have been needed for a number of years. Examples of these many suggestions include the needed alignment of the trigger questions in Part V related to interested persons to the definition in the glossary, as well as the need to update references to Uniform Guidance and the thresholds related to the requirement for a Single Audit engagement.
There has not yet been a response from the IRS regarding the timing of any changes or clarifications that are planned for the Form 990. We will keep you informed!
Eide Bailly can assist you with all aspects of your organization’s implementation of these new standards. Please contact a member of your Eide Bailly team today or one of our nonprofit professionals for help.
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