May 17, 2018
Clarifying Donor Restrictions
New Reporting of Net Assets Starting Soon
New rules set to take effect for the fiscal year beginning after Dec. 15, 2017 (with early adoption permitted) will change the way nonprofits report and describe their net assets. These changes will reduce the number of net asset classes from three to two and require separate subtotals for activities with and without donor restrictions.
Nonprofits today must report three classes of net assets on their financial statements: unrestricted, temporarily restricted and permanently restricted. This requirement will be replaced by a new one in which organizations must present only two classes: net assets acquired with donor restrictions and net assets acquired free of restrictions.
Donations received with restrictions usually limit their purpose and time frame. Financial statements must still offer such information, either on the face of the financial statements or in disclosures.
These may fall into either of the new classes. Donor-restricted endowment funds may seem self-explanatory, but a nonprofit must consider other factors as well, such as whether the fund is subject to trust or prudent-management laws.
On the other hand, boards may create “quasi-endowment funds” from unrestricted assets, usually for long-term investment. These also must be reported with information about any self-imposed limits on activities or timely use.
Nonprofits must also report the deficiency amounts for any ‘underwater’ donor-restricted endowment fund, which is a fund whose fair value is less than the original donation, or less than the amount that must be maintained either by donor or legal requirements.
Statement of Activities
Your nonprofit’s statement of activities must present the new classes of net assets, including:
The total change in net assets for the period,
The change in net assets without donor restrictions, and
The change in net assets with donor restrictions.
Further, for the change in net assets without donor restrictions, the statement of activities must present subtotals:
A subtotal of operating revenues, support, expenses, gains, and losses before internal transfers; and
A subtotal showing the effects of internal transfers.