The majority of nonprofit organizations have already adopted or are in the process of adopting Accounting Standards Update (ASU) 2016-14. The ASU includes some widely publicized changes in the nonprofit presentation standards involving net asset classes, liquidity and availability, and investment return, among others.
In addition, another potential major change required by the ASU receiving less attention involves the release of purpose and/or implied time restrictions relating to contributions restricted by donors for the acquisition or construction of property. The ASU requires application of the placed-in-service approach and no longer permits the release of restrictions as construction progresses or as the property is depreciated. The entire portion of the net assets with donor restrictions related to the property should be released when the property is placed in service.
What does the ASU 2016-14 update mean for my organization?
Under ASC 958-205-45-12,
“Unless donor stipulations limit the use of the assets for a period of time or for a particular purpose, donor restrictions on long-lived assets, if any, or cash to acquire or construct long-lived assets are considered to have expired when the assets are placed in service.”
This may be a major change from how many organizations have recorded releases related to net assets restricted by donors for the purchase or construction of property prior to ASU 2016-14. If the property, plant or equipment being depreciated was contributed to the organization with an explicit donor-imposed restriction on the length of time of the item’s use, net assets with donor restrictions should be reclassified as net assets without donor restrictions in the statement of activities as those restrictions expire (for example, when the construction project was completed, and the assets were placed in service).
What should I do?
Although this new placed-in-service change might not affect every organization, many of the other elements of the ASU have been getting more attention, and this is a change that should not be overlooked. It’s important to review net assets to identify potentially expired restrictions. Seem like a lot? If you need assistance with the implementation of this standard, we can help.
Learn more about common implementation concerns and challenges of ASU 2016-14.