Lessons Learned from Implementing ASU 2016-14 – Functional Expenses - UST
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Are you familiar with the Accounting Standards Update (ASU) 2016-14 issued by FASB? It’s a standard created to offer solutions to simplify and improve how a nonprofit organization is able to classify its net assets, financial statements, liquidity, financial performance, and cash flows. Now, that organizations have begun to apply this new standard, they are encountering implementation issues that were not anticipated.
When organizations are gathering and preparing their financial information, they’re being faced with making difficult decisions on how to best present this information. For example, an analysis of expenses by function and natural classifications can be presented in multiple ways however, what is the most efficient and most beneficial method to do so?
Tammy Ricciardello states “Our advice on the presentation? Keep it simple. Yes, the analysis of expenses by function and nature should show the natural expenses of the entity by program and supporting activities, but this doesn’t mean that every type of expense should be presented on its own line. A straightforward approach will prevent the presentation from becoming overly complex and unwieldy.”
It's important to remain focused on the information that is most useful and make sure that the one reading your financial statements can clearly understand the costs of each activity and where that activity is being allocated to. Remember, keep it simple.
To learn more about the best practices for implementing ASU 2016-14 functional expenses be sure to read the full article here.
Article provided by Tammy Ricciardella, CPA, Technical Director at BDO.