(General) Subject: Instructions for Not-for-Profit Institutions to Input Financial Statement Data into the eZ-Audit System Due to Changes Resulting from ASU 2016-14

Posted Date:August 29, 2018

Subject: Instructions for Not-for-Profit Institutions to Input Financial Statement Data into the eZ-Audit System Due to Changes Resulting from ASU 2016-14

Background:

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, with the stated purpose of improving financial reporting by not-for-profit entities (NFP). Among other provisions, ASU 2016-14 reduces the number of classes of net assets from three to two, and requires the presentation of expenses in both natural and functional classifications. ASU 2016-14 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted.

ASU 2016-14 does more than change the categorization of net assets. The objective of ASU 2016-14 is to clearly present an NFP’s liquidity and ability to operate. Unrestricted net assets are now called “net assets without donor restrictions.” Permanently restricted and temporarily restricted net assets are combined into “net assets with donor restrictions” with some modification and/or reclassification of net assets. An NFP may elect to continue to present net assets with perpetual donor restrictions and those expected to be released from restrictions over time or for a particular purpose. Regardless of the detail in the presentation, the NFP must present total net assets with donor restrictions, total net assets without donor restrictions, and total net assets in the statement of financial position.

As a result of the early adoption option, some NFPs are already preparing and submitting through the Department’s eZ-Audit System financials prepared using the new classes of net assets:

• Net Assets Without Donor Restrictions

• Net Assets With Donor Restrictions

However, the Department’s eZ-Audit System has not yet been updated to reflect these changes. As a result, it is necessary for the Department to provide guidance to the institution and audit communities on how to correctly input data from the NFP’s audited financial statements into the eZ-Audit financial statement templates. The purpose of this electronic announcement is to provide those instructions.

Note: In providing these interim instructions until the eZ-Audit system is updated to include the new classes of net assets, it is necessary to address a few accounting issues that may be modified if the financial responsibility regulations are changed. Changes to the regulations related to these new accounting treatments were discussed earlier in the year during negotiated rulemaking meetings. Any proposed changes to these regulations will receive public comments before they become final. If the Department’s regulations are updated, a separate electronic announcement will be issued at a future time. This announcement provides guidance for early implementers to ensure data is properly loaded into the financial statement templates.

Instructions:

In addition to the instructions provided here in this announcement, the Step-by-Step Guide to Using eZ-Audit For Not-for-Profit Institutions will also be revised and will be available at www.ezaudit.ed.gov for reference.

Statement of Financial Position:

Currently, an institution would use fields #15 (Temporarily Restricted, Split Interest Agreements and Term Endowments) and #16 (Permanently Restricted Net Assets) to properly record information from its audited financial statements. For early implementers, its net asset classes will not match so adjustments will have to be made for the following items:

1. Net Assets With Donor Restrictions – Place net assets with donor restrictions restricted in perpetuity in line #16 (Permanently Restricted Net Assets) and place net assets with donor restrictions for annuities, term endowments and life funds in line #15 (Temporarily Restricted Split Interest Agreements and Term Endowments) with the following adjustments:

1. Underwater Endowments –This amount should be included in ‘Net Assets Without Donor Restrictions’. However, there is no equivalent line item currently in the eZ-Audit template. To accomplish this, deduct this amount from what is input into line # 15 or #16.
2. Treatment of Restricted Funds – If an institution or board does not release restriction(s) for any endowment, annuity or life funds, the amount should not be reclassified from Net Assets With Donor Restrictions. To accomplish this, the amounts should stay in line #15.
3. Earnings on Endowments – Only deduct from the amount included in line #15 or #16, the unrestricted earnings on endowments, plus any other earnings that are released from restrictions.

2. Disclosures/Calculations –Please note that it may not be evident to the Department on how the amounts were actually calculated, given the adjustments above are mostly manual calculations. We recommend that, as a temporary measure, the institution and/or auditor inputting data into eZ-Audit attach a document showing the manual calculations and rationale for the adjustment(s). In some cases, the Department may need to contact the auditor or institution to request additional information to support adjustment(s).

Statement of Activities

Currently, an institution would use fields #1 (Total Unrestricted Revenues) and #2 (Total Unrestricted Expenses) to properly record information from its audited financial statements. For early implementers, the following adjustments have to be made:

1. Total Revenue Without Donor Restrictions – Place this figure in field #1 (Total Unrestricted Revenues).

2. Total Expenses Without Donor Restrictions – Place this figure in field #2 (Total Unrestricted Expenses).

3. Disclosures/Calculations – Given that any adjustments to the items above would be manual calculations, it may not be evident to Department how the amounts were actually calculated. Therefore, as a temporary measure, the institution and/or auditor inputting the data into eZ-Audit may want to attach a document showing the manual calculations and rationale for the adjustment(s). In some cases, it may be necessary to request additional information to support adjustment(s).

If you have any questions about these instructions, please contact the eZ-Audit Help Desk via email at fsaezaudit@ed.gov or by phone at 1-877-263-0780.