In August of 2016 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14 regarding the presentation of financial statements for nonprofit entities.
The main provisions of this guidance as they pertain to REAC financial statement submissions are as follows:
- Reduces the classes of net assets from three to two. Nonprofits will report amounts for net assets with donor restrictions, and net assets without donor restrictions. Classification of net assets with temporary restrictions will be eliminated. The impact to multifamily reporting will generally be limited to those entities who were reporting Section 202/811 as temporarily restricted net assets. Owners will now be required to determine in which category of net assets amounts will be presented.
- Nonprofits may elect to present the cash flow on either the direct or indirect methods. HUD’s handbooks require the direct method. However, REAC has elected to exercise the option to eliminate the indirect reconciliation on the direct method cash flow. Accordingly, the REAC template will remain on the direct method, but the schedule will end after the determination of cash.
- For-Profit entities will retain the full direct method cash flow.
ASU 2016-14 also increases requirements for nonprofits to disclose expenses by both their natural and functional classifications in one of the following locations:
- On the face of the statement of activities
- In the notes to financial statements, or
- As a separate financial statement (data schedule)
REAC has determined that the FASSUB template will NOT be modified to collect this data. Rather, in REAC, the data will only be includable in a footnote. In general, there is no specific guidance issued on the classification. In multifamily, the majority of the costs are program services. The general decisions will reside in the administrative costs.
The full text of ASU 2016-14 can be found here.