mission Matters
New Financial Reporting for Nonprofits: Statement of Cash flows
March 16, 2017Nonprofits, are you up to speed on the FASB’s changes to financial reporting? ASU 2016-14 and ASU 2016-18 will change the way you report information on the statement of cash flows.
Attention not-for-profit organizations, the Financial Accounting Standards Board has issued Accounting Standards Update (ASU) 2016-14 and 2016-18 which updates the current financial statement model. Included in these updates are changes to the way entities report information on their statements of cash flows.
What information is provided in the statement of cash flows?
The statement of cash flows shows a nonprofit organization’s change in its cash and cash equivalents during the financial statement period.
It consists of three sections:
- operating activities
- investing activities
- financing activities
Current Reporting methods
Organizations currently have two options when reporting information in the statement of cash flows:
- The direct method (shows the cash received from donors/customers, cash paid for expenses, cash from other activities). This method currently requires the indirect method reconciliation. The direct method is favored by the FASB.
- The indirect method (starts with a reconciliation of net income and progresses to cash from operations).
Currently there is limited guidance on how to present changes and report restricted cash and cash equivalents in the statement of cash flows.
New requirements
The new Accounting Standards Update eliminates the requirement to show indirect reconciliation when an organization chooses the direct method to report in the cash flow statement.
Amounts normally classified as ‘restricted cash’ and ‘restricted cash equivalents’ will be included with cash and cash equivalents when reconciling the total amounts (beginning of period, and end of period).
The Financial Accounting Standards Board (FASB) hopes that this elimination will reduce diversity in practice in how certain transactions are classified in the statement of cash flows.
Questions on ASU 2016-14 or ASU 2016-18 and its effects on nonprofit accounting? Contact any member of our Not-for-Profit Services Team. Also, stay tuned for more in our series, “New Financial Reporting Standards for Nonprofits.”
