As we previously reported, in April 2015 the Financial Accounting Standards Board (“FASB”) circulated a series of proposed changes to generally accepted accounting principles applicable to certain not-for-profit entities in order to provide clearer information to donors, creditors, and other users of financial statements. On August 18, FASB issued the related accounting standards update. The new standard is meant to improve the way not-for-profit organizations present and disclose information about net asset classes, expenses, investment return, liquidity and availability of resources, and operating cash flows. Among key changes, the new standards:

• replace the existing three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) with two new classes—net assets with donor restrictions and net assets without donor restrictions;

• change the net asset classification of so-called “underwater” endowment funds (i.e., a fund for which the fair value of the assets and accumulated returns are less than the historical amount of the gift) and require additional disclosures;

• require qualitative and quantitative information regarding an organization’s financial resources, liquidity, and liquidity risk; and

• change how organizations present their expenses and investment return.

The accounting standards update can be found here. The new standards will be effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Organizations should consult with their auditors regarding how the new standards may affect their financial disclosures.