03/09/2017

Simplification of Net Asset Classifications is a Breath of Fresh Air

by Tamara A. Johnson, CPA, Clark Schaefer Hackett

Net Assets – Simplified!
With the growing complexity in our regulatory environment, simplification of net asset classifications is a breath of fresh air. The Financial Accounting Standards Board (FASB) has become a trend setter with the issuance of Accounting Standards Update (ASU) No. 2016-14, a portion of which eliminates one of the net asset classifications. Previously, organizations were required to present unrestricted, temporarily restricted and permanently restricted net assets for financial reporting purposes. The three categories have caused confusion for users of financial statements and accountants alike. So the new ASU simply includes “net assets without donor restrictions” and “net assets with donor restrictions.” Seems fairly straightforward, right? Here’s what that means:

2 become 1
Simply put, net assets previously disclosed as temporarily restricted and permanently restricted will now be condensed into one category: “net assets with donor restrictions.” Contributions and other gift instruments having donor restrictions that expire either over time or through satisfying the purpose restriction were included in temporarily restricted net assets. An organization might also receive a contribution from a donor with restrictions that do not expire or, in other words, the asset is required to be maintained in perpetuity. Those net assets were reported in the permanently restricted classification. The combination of these two classifications now simplifies the face of financial statements and all related disclosures, including the nature of net asset composition and endowment disclosures. The change also reduces the administrative burden to prepare all of the previously required detail for financial reporting purposes.

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