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Community Action Agencies – Prepare for financial statement changes

June 20, 2017


Not-for-profit (NFP) financial statements have not had any significant changes in more than 20 years. But for fiscal years beginning after December 15, 2017, the financial statement format and notes to the financial statements will change.

The changes made by the Financial Accounting Standards Board (FASB) under ASU 2016-14 are intended to make reporting less complex for not-for-profits (NFPs) and the information in financial statements more meaningful to those who use it.

The most significant changes to the financial statements are summarized below.

Net Asset Classification

The number of net asset classes are going from three to two. The previous unrestricted, temporarily restricted and permanently restricted are changing to: net assets without donor restrictions and net assets with donor restrictions.

Net assets without donor restrictions can still show without restrictions and board restricted if your Community Action Agency (CAA) has board-designated net assets. The net assets with donor restrictions merge temporarily and permanently restricted net assets into one category.

Disclosures in the note to the financial statements are similar to prior disclosures for net assets with donor restrictions. There are new expanded disclosures required for board-designated net assets.

Additionally, for contributions for acquired or constructed property and equipment, the guidance provides for a placed-in-service approach unless there are explicit donor stipulations. As many CAAs have received funding for property and equipment with varying restrictions from funding sources, each CAA will need to evaluate the impact to their financial statements based on their specific facts and circumstances.

Financial Statement Disclosures Surrounding Liquidity

For CAAs, this is going to be the most significant change to your financial statements. The disclosures will help the reader of the financial statements understand the liquidity of the NFP and restrictions on net assets, both from internal board designation and donor restrictions. The focus is on the availability of resources from one year from the date of the financial statements.

The enhanced disclosure requirements include:

  1. Amounts and purposes of board designations that result in self-imposed limits on use of resources (financial assets)
  2. Composition of net assets with donor restrictions at the end of the period and how the restrictions impact the use of resources
  3. Qualitative and quantitative information that communicates how the NFP manages its liquid resources available to meet cash needs for general expenditures within one year of the statement of financial position date. Availability of a financial asset can be limited by its 1.) nature, 2.) external limits imposed by funding sources, laws, contracts and 3.) internal limits imposed by the board of directors.
  4. Additional disclosures for those with underwater endowment funds

 Cash Flow Statement Presentation

If you are using the direct method for your cash flow presentation of operating cash flows, the indirect reconciliation that has previously been presented is no longer required. Both the indirect or direct method of presenting the cash flow statements continue to be allowed.


All NFPs are now required to present a statement of functional expenses in the financial statements or footnotes and disclosures on the methods used to allocate costs among program and support functions. CAAs should already be presenting this information in their annual audited financial statements.

Reporting Investment Return

For those CAAs with an investment portfolio, investment return will be reported net of direct internal and external investment expenses. The investment return is reported for both net asset classifications, if applicable.


These changes to the financial statement format and disclosures for all NFPs were issued to give more information to the users of the financial statements, including grantors, donors, creditors and your board of directors. To prepare, you should discuss with your advisors all of the changes required under ASU 2016-14, and which specific issues will affect your CAA financial statements.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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