New Financial Reporting for Nonprofits Series: Investment Returns & Treatment of Investment Expenses - A Mission Matters Blog Article from KLR

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New Financial Reporting for Nonprofits Series: Investment Returns & Treatment of Investment Expenses

posted May 19, 2017 by Jeremy Parmer in the Mission Matters Blog

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ASU 2016-14 was released by the Financial Accounting Standards Board, in hopes to completely transform and improve the way nonprofits report finances. So, how will these changes affect investments?

Current method

The old guidance stipulates that components of an organization’s investment expenses are either to be disclosed on the investment return or reported in the statement of functional expenses. The ‘components’ of investment expenses include both external and direct internal expenses. External investment expense refers to costs for investment advisory services, transaction fees, custodial fees, etc. Direct internal expenses include salaries of staff responsible for the implementation of the Organization’s investment strategy and costs associated with selecting, overseeing, and managing the performance of the external investment custodians.  

New Presentation of Investment Expenses

Organizations will be required to present a net presentation of investment expenses against investment return on the face of the statement of activities. External and direct internal investment expenses will be netted against the investment return. Disclosing the components of investment expense will no longer be required. In addition, it is no longer allowed to be included with the statement of functional expenses.

Why the change?

The change not only creates a consistent presentation across all nonprofit entities, but also it abolishes the difficulty and expenses attached to identifying embedded investment fees in the investment returns used by some nonprofits, like mutual and hedge funds. 

When will the changes be final?

ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018.  Stay tuned for the next part of our series, “New Financial Reporting Standards for Nonprofits: 2017 Update.”

Questions? Contact any member of our Not-for-Profit Services Team.