Has your institution considered the TWO “Statements of Functional Expenses” required for this year’s financial statements and Form 990?



Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

SCC’s CFO calls us to ask about the changes to be wrought by the requirement to follow ASU 2016-14 – for their fiscal year ended June 30, 2019 – with respect to functional expense presentations and disclosures.

“Can we just follow the same methodology we’ve been using on Form 990 and write up a narrative about how we made those allocations?”

“Interesting question,” we say, “technically, you might be able to utilize that framework, but many institutions are going to want to ‘tweak’ their presentation and allocation methodologies based on adopting the new FASB rules.  And, remember, there will be differences from the GAAP statement and Form 990, Part IX due to rental expenses, expenses for fundraising events, donated services and/or facilities, etc.”

An interesting place where GAAP and Form 990 reporting might “deviate” (but don’t have to) is in the new arena of functional expense reporting and disclosure.  For many years, institutions have been allocating “functional expenses” among Program service, Management and general, and Fundraising on Form 990, Part IX.  Part IX has a stringent set of instructions regarding where – which line and column – various expenses should be reported. Now, under the strictures of ASU 2016-14, the FASB has published their own guidelines and examples.  The two sets of “rules” are not mutually exclusive – necessarily.  Schools should be careful in planning for the manner in which they will report functional expenses as a separate statement in their audited financials or in the notes to those financial statements.  It would appear to be a wise move to ensure that you are considering Form 990, Part IX as you complete your financial statements.



From ASU 2016-14 (page 2):

The main provisions of this Update, which amend the requirements for financial statements and notes in Topic 958, Not-for-Profit Entities, require an NFP to:

Provide the following enhanced disclosures about:

  1. Amounts of expenses by both their natural classification and their functional classification. That analysis of expenses is to be provided in one location, which could be on the face of the statement of activities, as a separate statement, or in notes to financial statements.
  2. Method(s) used to allocate costs among program and support functions.

From 2018 Form 990, Part IX instructions:

Use the organization’s normal accounting method to complete this section. If the organization’s accounting system does not allocate expenses, the organization can use any reasonable method of allocation. The organization must report amounts accurately and document the method of allocation in its records. Report any expense described in lines 1–23 in the appropriate line; don’t report such expense in line 24. Don’t report in Part IX expenses that must be reported on lines 6b, 7b, 8b, 9b, or 10b in Part VIII.



  • Have you looked at the new “qualitative and quantitative” disclosure rules for a Statement of Functional Expenses under ASU 2016-14?
  • In a recent survey, almost 80% of schools stated that they had not “already written the functional expense narrative that is required to be a part of your financial statements this year.”
  • Might this year be a good time to re-look at the manner in which you are reporting functional expenses – by column and line item – for Form 990, Part IX?  Then, should you include a narrative explanation of any changes on Schedule O?
  • It could be a big time saver to carefully plan how your school is going to accumulate, allocate, and present functional expenses on the two “Statements of Functional Expenses” you’ll be preparing in 2019 – and beyond.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

© 2019 Christian College Resources, Inc.