Connections for Success

 

08.29.18

Liquidity and Availability of Resources Disclosures Under the New ASU 2016-14: Presentation of Financial Statements of Not-for-Profit Entities
Sarah G. Widlock

In an effort to provide more useful information to users of the financial statements, the Financial Accounting Standards Board (FASB) released ASU 2016-14 Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not for Profit Entities. While the ASU focuses on five main areas that are changing, this blog will highlight just one – liquidity and availability of resources.

Limitation on Financial Statements

Prior to the release of ASU 2016-14, there was very little reported in an organization’s financial statements in regards to the organization’s liquidity and availability of resources. Previously, readers of financial statements could look to the organization’s statement of financial position and the sequencing of assets, according to their nearness of conversion to cash and sequencing of liabilities, in accordance to the nearness of their maturity and resulting use of cash in order to assess an organization’s liquidity.

However, that only showed a small portion of picture. Because of the nuances of not-for-profit accounting, many readers of the financial statements did not realize that there may be limitations placed on the way an organization can use those assets, due to donor imposed restrictions on contributions. The actual assets that an organization had available for use in the ordinary course of business was blurred on the financial statements.

Disclosure Requirements

Effective for calendar years ending December 31, 2018 or fiscal years ending after that date, all not-for-profit organizations are required to disclose relevant information about the liquidity or maturity of assets, including restrictions and self-imposed limits on the use of particular items. Specifically, quantitative information (and additional qualitative information) about the availability of its financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date is to be disclosed on the face or in the notes to the financial statements.

Disclosure of quantitative information is required to communicate the availability of your organization’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date. Keep in mind that availability may be affected by the nature of the assets, external limits imposed by donors, laws, contracts with others and internal limits imposed by governing board decisions.

Disclosure of qualitative information is required in the notes of the financial statements for specifically communicating how your organization manages its liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date.

Managing Financial Resources

Management and the board of directors are likely managing liquid resources on a regular basis already, and, if not, they should be. Effective decision making can only be done once you have isolated the resources that your organization has available to use. Therefore, the calculations of liquid resources available are not overly complicated. However, the concept of laying out this number for all to see, no matter the size, can be a little terrifying. Organizations should use this as an opportunity to tell their story and share with donors, board members, creditors and other stakeholders the strategy that the organization uses to manage its financial resources.

We encourage you to reach out to your CPA or call us to discuss how this new standard affects your organization’s financial statements, as well as any implications to the audit of your organization.

For more information, contact Sarah Widlock at swidlock@orba.com or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.

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