What you need to Know – New Reporting and Disclosure Requirements Require Planning and Additional Information


Financial Accounting Standards Board’s (FASB) (ASU) No. 2016-14 Presentation of Financial Statements of Not-for-Profit (NFP) Entities goes into effect for fiscal years beginning after December 31, 2017. This update is meant to simplify and improve how a NFP organization classifies its net assets, as well as the information it presents in the financial statements and notes about its liquidity, financial performance, and cash flows. Surprisingly, one of the most challenging aspects of this change may be the new disclosures for reporting how a NFP manages its liquidity and the availability of financial assets.

The liquidity information required in the financial statement disclosures includes:

  1. Qualitative information in the notes that describes how a NFP manages its liquid resources available to meet cash needs for general expenditures within one year of the statement of financial position date. Liquid resources are resources that are easily converted to cash.
  2. Quantitative information either on the face of the statement of financial position or in the notes, and additional qualitative information in the notes as necessary, that communicates the availability of a NFP’s financial assets at the statement of financial position date to meet cash needs for general expenditures within one year of the statement of financial position date. Availability of a financial asset may be affected by: its nature, limits imposed by donors, laws, and contracts with others, and internal limits imposed by governing board decisions.

What this means for a NFP:

If a NFP has used cash from temporarily restricted funds to fund operations, it will be more clearly displayed in the financial statements.

Since the liquidity disclosures are new to the financial statements, we suggest you begin having discussions with your management team soon, including giving consideration to the following issues:

* Defining the organization’s policy for managing liquidity

* Identification of external limits on the availability of financial assets that may be imposed by donors, laws, and contracts with others

* Identification of internal limits on the use of liquid resources the governing board may have imposed on the availability of financial assets

* If your organization has an endowment, the effects of the endowment and the annual draw from the endowment on your financial resources that may be available to meet cash needs for general expenditures

* Line of credit arrangements available to meet liquidity needs

Blue & Co., LLC is having a seminar to further explain the changes and what a non-profit should do to prepare for implementation. Please click here for more information and to register.

For questions about the article or to schedule an appointment, please contact Clay Deye, Director cdeye@blueandco.com; 513-287-7575.