Financial Edge NXT should allow organizations to deactivate the legacy net asset classifications of Unrestricted Net Assets, Temporarily Restricted Net Assets, and Permanently Restricted Net Assets. These classifications were superseded by FASB several years ago, yet they remain active system options that cannot be disabled.

Organizations that report in accordance with current U.S. GAAP now use the two required net asset classes:

• Net Assets Without Donor Restrictions

• Net Assets With Donor Restrictions

Because the legacy classifications remain available and cannot be deactivated, users can inadvertently select obsolete classifications during data entry, reporting, or setup, creating unnecessary risk and confusion.

Why This Matters

In 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-14, which fundamentally changed nonprofit financial statement presentation. The update eliminated the three-class model:

• Unrestricted Net Assets

• Temporarily Restricted Net Assets

• Permanently Restricted Net Assets

and replaced it with the current two-class model:

• Net Assets Without Donor Restrictions

• Net Assets With Donor Restrictions

This standard has been effective for several years, and nonprofit organizations are required to present their financial statements using the updated classifications.

Current Problem

Although Financial Edge fully supports the current classifications, the obsolete net asset classes continue to exist in the system and cannot be deactivated or hidden.

This creates several issues:

• Users may accidentally assign transactions to obsolete classifications.

• New employees may assume the legacy classifications are still appropriate because they remain available.

• Organizations must continually train staff to avoid options that should no longer be used.

• Reports and queries become more cluttered with inactive accounting concepts.

• Administrators cannot simplify the system to match current GAAP requirements.

From a governance and internal control perspective, software should help prevent errors rather than require users to remember which options are obsolete.

Suggested Enhancement

Allow administrators to:

• Deactivate or hide obsolete net asset classifications.

• Prevent future use of legacy classifications while preserving historical transactions.

• Optionally migrate existing legacy balances to the current FASB classifications where appropriate.

• Configure organizations to display only currently accepted FASB net asset classes.

Historical data should remain intact for audit purposes, but administrators should have the ability to prevent future use.

Benefits

This enhancement would:

• Improve compliance with current FASB standards.

• Reduce data entry errors.

• Strengthen internal controls.

• Simplify training for new users.

• Produce cleaner reports and queries.

• Align Financial Edge with current nonprofit accounting guidance.

• Reduce administrative time spent monitoring for accidental use of obsolete classifications.

Why Compliance Matters

Accounting software should evolve alongside authoritative accounting standards. Since FASB establishes the accounting principles that govern nonprofit financial reporting in the United States, continuing to present obsolete accounting classifications as active system options increases the risk of inconsistent reporting and user error.

Providing administrators with the ability to deactivate legacy classifications would help organizations maintain compliance with current GAAP, improve data integrity, and ensure Financial Edge continues to support modern nonprofit financial reporting practices.