FASB Statement 117 and Classifications of Net Assets
Using a previous selected NFP CAFR or another NFP CAFR you are interested in, identify the three classifications of net assets established by FASB Statement 117?
In accordance with FASB Statement No. 117, not-for-profit organizations must classify their net assets into three categories – unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The AARP also categorizes their net assets as one of these based on the existence or absence of donor-imposed restrictions. Notes provided in the AARP’s annual financial report it states, “when the time or program use restrictions are met, the temporarily restricted net assets are reclassified to unrestricted net assets and are reported as net assets released from restrictions in the accompanying statements of activities.”
How are these net assets affected by the existence or absence of donor-imposed restrictions?
These net assets are affected by the existence of donor-imposed restrictions due to stipulations that the funds must be used for a specific purpose. The absence of donor-imposed restrictions doesn’t mean that the funds are not restricted by the organization, regulatory authorities, a governing body, or some other party. These types of restrictions will still classify the assets as unrestricted because they are not donor-imposed.
How are releases of these net assets accomplished?
The release of these net assets is accomplished by expensing the funds when the assets are used. Expenses are reported as decreases in unrestricted net assets.