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 of users to understand 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.

For 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.