LUTZ BUSINESS INSIGHTS
Not-for-Profit Net Asset Classification Changes
JULIANNE KIPPLE, HEALTHCARE DIRECTOR
FASB released ASU 2016-14 Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities on August 18th, 2016. The purpose of the project is to help entities, including applicable healthcare organizations, easily explain their financial position through the financial statements. Areas of focus include improving the financial statements and notes in the areas of financial performance, cash flows, and liquidity and improving the classification of net assets. The effective date is for fiscal years starting after 12/15/17.
Currently, NFPs recorded net assets as unrestricted, permanently restricted, or temporarily restricted. Under the new guidance, there would only be two classifications – either with donor restrictions or without donor restrictions. In the disclosures to the financial statements, entities would need to note whether there are internal or board restrictions on the amounts included in the without donor restrictions category and the purpose of those restrictions. Entities would need to disclose the nature and amount of external donor restrictions within the donor restriction category.
Essentially, there would not be a distinction between permanent and temporary restrictions on the face of the financials. The change is trying to reduce complexity and increase the ability for users to understand the financial statements. Endowment funds with current values less than the original value at the time of funding, or “underwater” endowment funds, should be reported as a net asset with donor restrictions. The NFP would need to disclose the amount that the fund is underwater, the original gift amount, the current fair value amount, and any organizational spending policies regarding these funds.
Healthcare facilities that obtain funding from contributions, grants, donations, or other funding, we recommend they review the new guidance to ensure they are gathering the information needed for the financial statements, including the financial statement disclosures. For example, how are facilities tracking internally or board restricted amounts?
Donor restricted funds, does the facility have a policy to track the donor, the amount of the donation, the purpose of the restriction, and the amount of funds expended for that stated purpose? Setting up internal policies and procedures regarding net asset classifications and either internally or externally restricted amounts will help with the transition to the new guidance and could help increase oversight of donor gifts and uses of funds.
ABOUT THE AUTHOR
JULIANNE KIPPLE + HEALTHCARE DIRECTOR
Julianne Kipple is a Healthcare Director at Lutz with over 10 years of professional experience in the healthcare industry. Her expertise is in accounting and consulting services for healthcare facilities, including outsourced CFO services, Medicare and Medicaid reimbursement, and Medicaid Disproportionate Share Surveys (DSH).
AREAS OF FOCUS
- Healthcare Accounting & Consulting
- Medicare & Medicaid Reimbursement
- Outsourced CFO Services
- Medicaid Disproportionate Share Surveys (DSH)
- Financial Support Services
AFFILIATIONS AND CREDENTIALS
- Healthcare Financial Management Association, Member
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Revenue Cycle Representative
- Certified Public Accountant
- Certified Healthcare Financial Professional
- BSBA in Accounting, with high distinction, Creighton University, Omaha, NE
- MBA, Creighton University, Omaha, NE
- Benefits of Medicare Interim Cost Report Template for Critical Access Hospitals
- External Financial Statement Audit + Medicare Cost Report Best Practices
- Year-End Audit and Cost Report Planning, Preparation Tips
- Medicare Cost Report Electronic Filing
- Attention Kansas CAH's - Upcoming DSH Surveys
- Flex Monitoring - CAH Financial Indicators Released
- Provider Quality Reporting System (PQRS) + Merit-Based Incentive Payment System (MIPS) Transition Update
- CMS Medicare Outpatient Observation Notice (MOON) Form
- Hospital Board of Director Responsibilities
- Not-For-Profit Net Asset Classification Changes
- Healthcare Revenue Recognition & Self-Pay Contracts
- Changes in Accounting for Leases + the Impact on Healthcare Entities
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