-
BDO USA, LLP, a Delaware limited liability partnership, is the
U.S. member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms.
FINANCIAL STATEMENTS PRESENTATION FOR NONPROFITS –IMPLEMENTATION
PERSPECTIVE
April 26, 2018
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 2
LEE KLUMPPNational Assurance Partner
[email protected]
CARLA DEMARTINIDirector
[email protected]
With you today
-
3 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Presentation of Financial Statements of NFP Entities (ASU
2016-14)
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 4
Key Provisions of ASU 2016-14
Net Asset ClassificationUpdated net asset classification
scheme to two classes, changes to underwater endowment
accounting, enhanced disclosures
Liquidity & AvailabilityQuantitative & qualitative
disclosures about liquidity and availability of resources
Expenses
Requirement to report expenses by function (already required),
nature,
and an analysis showing the relationship between function
and
nature
Statement of Cash FlowsContinue to allow direct or indirect
method for operating cash flows; indirect reconciliation no
longer
required for direct method
Investment ReturnPresent investment return net of
external and direct internal investment expenses, no longer
required to disclose netted expenses
-
5 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Objectives and Effective Date
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 6
Update, not overhaul, the current model Improve net asset
classification scheme Improve information in financial statements
and notes about:
• Financial performance• Cash flows• Liquidity
Better enable NFPs to “tell their financial story” Provide more
useful information to donors and other users of the financial
statements
NFP Financial Statements Project—Key Objectives (recommended by
FASB’s NFP Advisory Committee (NAC))
6
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 7
Effective Date
Presentation of Financial Statements of NFPs, ASU 2016-14
Effective Date: For fiscal years beginning after 12/15/2017
Interim financials the following year• Calendar year ending
12/31/18
• Fiscal year ending 6/30/19
-
8 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Net Assets
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 9
Net Assets
Unrestricted Temp. RestrictedPerm.
Restricted
Without Donor Restrictions With Donor Restrictions
Amount, purpose, and type of board
designations *
Nature and amount of donor restrictions
CurrentGAAP
Proposed GAAP
Disclosures
+
* New disclosure requirement
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 10
Example Effect on Statement of Financial Position
Note: Shaded lines are required to be presented.
Source: ASU 958
Not-for-Profit Entity A
Statements of Financial Position
June 30, 20X1 and 20X0
(in thousands)
20X1 20X0
Assets:
Cash and cash equivalents $ 4,575 $ 4,960
Accounts and interest receivable 2,130 1,670
Inventories and prepaid expenses 610 1,000
Contributions receivable 3,025 2,700
Short-term investments 1,400 1,000
Assets restricted to investment in land, buildings, and
equipment 5,210 4,560
Land, buildings, and equipment 61,700 63,590
Long-term investments 218,070 203,500
Total assets $ 296,720 $ 282,980
Liabilities and net assets:
Accounts payable $ 2,570 $ 1,050
Refundable advance - 650
Grants payable 875 1,300
Notes payable - 1,140
Annuity trust obligations 1,685 1,700
Long-term debt 5,500 6,500
Total liabilities 10,630 12,340
Net assets:
Without donor restrictions (Note DD) 92,600 84,570
With donor restrictions (Note B) 193,490 186,070
Total net assets 286,090 270,640
Total liabilities and net assets $ 296,720 $ 282,980
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 11
Example Effect on Statement of Financial Position
Note: Shaded lines are required to be presented.
Source: ASU 958
Net assets:Without donor restrictions (Note DD) 92,600 84,570
With donor restrictions (Note B) 193,490 186,070 Total net assets
286,090 270,640
Total liabilities and net assets $ 296,720 $ 282,980
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 12
Note: Shaded lines are required to be presented.
Source: ASU 958-205-55-14
EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR
FORMAT
Example of Effect on Statement of Activities -Columnar
Format
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 13
Note: Shaded lines are required to be presented.
Source: ASU 958-205-55-14
EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR
FORMAT
Example of Effect on Statement of Activities -Columnar
Format
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 14
Disclosures Related to Net Assets
Amounts and purposes of governing board designations,
appropriations, and similar actions that result in self-imposed
limits on the use of resources without donor-imposed restrictions
as of the end of the period.
Composition of net assets with donor restrictions at the end of
the period and how the restrictions affect the use of
resources.
Additional information related to underwater endowment
funds.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 15
Disclosures Related to Net Assets
Information about the nature and amounts of different types of
donor-imposed restrictions should be reported either on the face of
the statements or in the notes. Separate line items that
distinguish between the different types of restrictions may be used
such as:
• Assets, such as land or works of art, donated with
stipulations that they be used for a specified purpose, be
preserved, and not be sold.
• Assets donated with stipulations that they be invested to
provide a permanent source of income.
• Support of particular operating activities. • Investment for a
specified term.• Use in a specified future period.• Acquisition of
long-lived assets.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 16
Net Asset Disclosure Example
Excerpt from ASC 958-210-55-3
With donor restrictionsPerpetual in nature 200,000$ Purpose
restricted 1,840,000 Time-restricted only, for periods after 20X1
150,000
2,190,000$ Without donor restrictions
Designated by the Board for [purpose] 1,000,000$ Undesignated
24,000,000 25,000,000
Net assets 27,190,000$
Sheet1
Not-for-Profit Entity A
Statements of Financial Position
June 30, 20X1 and 20X0
(in thousands)
20X120X0
Assets:
Cash and cash equivalents$ 4,575$ 4,960
Accounts and interest receivable2,1301,670
Inventories and prepaid expenses6101,000
Contributions receivable3,0252,700
Short-term investments1,4001,000
Assets restricted to investment in land, buildings, and
equipment5,2104,560
Land, buildings, and equipment61,70063,590
Long-term investments218,070203,500
Total assets$ 296,720$ 282,980
Liabilities and net assets:
Accounts payable$ 2,570$ 1,050
Refundable advance650
Grants payable8751,300
Notes payable1,140
Annuity trust obligations1,6851,700
Long-term debt5,5006,500
Total liabilities10,63012,340
Net assets:
Without donor restrictions (Note DD)92,60084,570
With donor restrictions (Note B)193,490186,070
Total net assets286,090270,640
Total liabilities and net assets$ 296,720$ 282,980
Sheet 2
With donor restrictions
Perpetual in nature$ 200,000
Purpose restricted1,840,000
Time-restricted only, for periods after 20X1150,000
$ 2,190,000
Without donor restrictions
Designated by the Board for [purpose]$ 1,000,000-
Undesignated24,000,00025,000,000
Net assets$ 27,190,000
3
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 17
“Underwater” Endowments
17
• To be reflected in net assets with donor restrictions rather
than in net assets without donor restrictions
Revised net asset classification
• In addition to aggregate amounts by which funds are underwater
(current GAAP), also disclose aggregate of original gift amounts
(or level required by donor or law) for such funds, fair value, and
any governing board policy or decision to reduce or not spend from
such funds.
Enhanced disclosures
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 18
Operating Measure: Improved Disclosures
For those NFPs that utilize an operating measure and show
governing board designations, appropriations, and similar actions
(internal transfers) in the measure:
These NFPs must report these types of internal transfers
appropriately disaggregated and described by type (either on the
face of the financial statements or in the notes).
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 19
Example of Operating Measure Presentation
Source: ASU 958-225-55-17
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 20
Example of Operating Measure Presentation
Source: ASU 958-225-55-17
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 21
Implementation Issues – Net Assets
In order to change from three classes of net assets to only two
classes, NFPs willhave to perform a detailed review of their
organization’s records to make sureall funds are classified
correctly.
The new standard requires reporting of underwater amounts of
donor-restricted endowment funds in net assets with donor
restrictions. The standard also enhances disclosures about
underwater endowments. Therefore, underwater amounts previously
reported in unrestricted funds must be reclassified to net assets
with donor restrictions.
Subcategories of net assets classes should be established and
reviewed withaudit committee, if organization wishes to report
subcategories.
Organizations should ensure policies are in place to reflect new
disclosurerequirements in relation to net assets.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 22
Expiration of Capital Restrictions
Gifts of cash restricted for acquisition or construction of
PP&E NFPs would be required to use the placed-in-service
approach (no more
implied time restrictions) unless there is a donor explicit
stipulation of a time period for the use of assets
Reclassify any amounts from net assets with donor restrictions
to net assetswithout donor restrictions for such long-lived assets
that have been placed inservice as of the beginning of the period
of adoption (thus eliminating thecurrent option to release the
donor-imposed restriction over the estimateduseful life of the
acquired asset).
Approach for reporting expirations on gifts of capital
assets:Does your organization use the placed-in-service approach?
If not, your organization will have to adopt it, taking into
account any donor explicit stipulations
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 23
Implementation Issues – Capital Restrictions
When examining the effect of the ASU on your organization, you
should look atwhether you have any contributions of long-lived
assets that are beingreclassified over time without any explicit
stipulation of a time period for the useof the asset. If these
assets have already been placed in service, the amount ofthese
long-lived assets should be reclassified from net assets with
donorrestrictions to net assets without donor restrictions upon
adoption of the ASU.
In addition, the organization will have to modify its policy
with regard to thereceipt of contributions for the construction of
long-lived assets or donated long-lived assets. Upon adoption of
the ASU, an organization will have to recognizerevenue without
donor restrictions when the donated assets are placed in
serviceabsent any explicit donor stipulations otherwise. In the
past, organizations hadan option to either follow the
placed-in-service approach or to place an impliedtime restriction
on the long-lived assets.
-
24 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Liquidity
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 25
Liquidity and Availability of Resources
NFPs required to
provide:
Qualitative information on how an NFP manages its liquid
available resources and its liquidity risk (in
the notes)
Quantitative information that communicates the availability of
an NFP’s financial assets at the
statement of financial position date to meet cash needs for
general expenditures within one year (on
the face and/or in the notes)
Examples from early adopters demonstrate three ways to provide
the required information
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 26
Liquidity and Availability of Resources
Qualitative
NFPs are required to communicate how they manage their liquid
resources available to meet cash needs for general expenditures
within one year of the date of the statement of financial position.
Additionally, NFPs should disclose any of the following:
a. Unusual circumstances, such as special borrowingarrangements,
requirements imposed by resource providers thatcash be held in
separate accounts, and known significantliquidity problems.
b. The fact that the NFP has not maintained appropriateamounts
of cash and cash equivalents to comply with donor-imposed
restrictions.
c. Information about significant limits resulting
fromcontractual agreements with suppliers, creditors, and
others,including the existence of loan covenants.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 27
Liquidity and Availability of Resources
Quantitative
NFPs are required to communicate the availability of their
financial assets at the statement of financial position date to
meet cash needs for general expenditures within one year (on the
face and/or in the notes).
Availability of a financial asset may be affected by (1) its
nature, (2) external limits imposed by donors, grantors, laws, and
contracts with others, and (3) internal limits imposed by governing
board decisions.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 28
Quantitative and Qualitative Liquidity and Availability of
Resources Disclosure Example
Source: ASU 958-210-55-8
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 29
Quantitative and Qualitative Liquidity and Availability of
Resources Disclosure Example
Source: ASU 958-210-55-8
Note T (Continued)
NFP A’s endowment funds consist of donor-restricted endowments
and a quasi-endowment. Incomefrom donor-restricted endowments is
restricted for specific purposes and, therefore, is notavailable
for general expenditure. As described in Note Y, the
quasi-endowment has a spendingrate of 5 percent. $1.65 million of
appropriations from the quasi-endowment will be availablewithin the
next 12 months.
As part of NFP A’s liquidity management, it has a policy to
structure its financial assets to beavailable as its general
expenditures, liabilities, and other obligations come due. In
addition, NFPA invests cash in excess of daily requirements in
short-term investments. To help manageunanticipated liquidity
needs, NFP A has committed lines of credit in the amount of $20
million,which it could draw upon. Additionally, NFP A has a
quasi-endowment of $33 million. Although NFPA does not intend to
spend from its quasi-endowment other than amounts appropriated
forgeneral expenditure as part of its annual budget approval and
appropriation process, amountsfrom its quasi-endowment could be
made available if necessary. However, both the quasi-endowment and
donor-restricted endowments contain investments with lock-up
provisions thatwould reduce the total investments that could be
made available (see Note X for disclosures aboutinvestments).
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 30
Quantitative Disclosure of Financial Asset Availability
Financial assets, at year end* 234,410$
Less those unavailable for general expenditures within one year,
due to: Contractual or donor-imposed restrictions:
Restricted by donor with time or purpose restrictions (11,940)
Subject to apropriation and satisfaction of donor restrictions**
(174,700) Investments held in annuity trust (4,500)
Board designations: Quasi-endowment fund, primarily for
long-term investing** (36,600) Amounts set aside for liquidity
reserve (1,300)
Financial assets available to meet cash needs for general
expenditures within one year 5,370$
* Total assets, less nonfinancial assets (e.g., PP&E,
inventory, prepaids)
** Excludes amounts that have been appropriated for next 12
months that do not have purpose restrictions
Source: ASU 958-205-55-21
Sheet1
Not-for-Profit Entity A
Statements of Financial Position
June 30, 20X1 and 20X0
(in thousands)
20X120X0
Assets:
Cash and cash equivalents$ 4,575$ 4,960
Accounts and interest receivable2,1301,670
Inventories and prepaid expenses6101,000
Contributions receivable3,0252,700
Short-term investments1,4001,000
Assets restricted to investment in land, buildings, and
equipment5,2104,560
Land, buildings, and equipment61,70063,590
Long-term investments218,070203,500
Total assets$ 296,720$ 282,980
Liabilities and net assets:
Accounts payable$ 2,570$ 1,050
Refundable advance650
Grants payable8751,300
Notes payable1,140
Annuity trust obligations1,6851,700
Long-term debt5,5006,500
Total liabilities10,63012,340
Net assets:
Without donor restrictions (Note DD)92,60084,570
With donor restrictions (Note B)193,490186,070
Total net assets286,090270,640
Total liabilities and net assets$ 296,720$ 282,980
Sheet 2
With donor restrictions
Perpetual in nature$ -$ -
Purpose restricted--
Time-restricted only, for periods after 20X1--
Without donor restrictions
Designated by the Board for [purpose]$ --
Undesignated--
Net assets$ -
Sheet1 (2)
Purpose restrictions accomplished:
Program A expense$ 4,350
Program B expense3,450
Program C expense1,190
8,990
Program A equipment acquired and placed in service1,500
Time restrictions expired:
Passage of specified time850
Death of annuity beneficiary400
Total liabilities1,250
Release of appropriated endowment amounts without purpose
restrictions4,500
Release of appropriated endowment amounts with purpose
restrictions3,000
Total restrictions released$ 19,240
3
Sheet1 (3)
Financial assets, at year end*$ 234,410
Less those unavailable for general expenditures within one year,
due to:*
Contractual or donor-imposed restrictions:
Restricted by donor with time or purpose
restrictions(11,940)
Subject to apropriation and satisfaction of donor
restrictions**(174,700)
Investments held in annuity trust(4,500)
Board designations:
Quasi-endowment fund, primarily for long-term
investing**(36,600)
Amounts set aside for liquidity reserve(1,300)
Financial assets available to meet cash needs for general
expenditures within one year$ 5,370
* Total assets, less nonfinancial assets (e.g., PP&E,
inventory, prepaids)
** Excludes amounts that have been appropriated for next 12
months that do not have purpose restrictions
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 31
Implementation Issues –Liquidity and Availability
NFPs will now have to show disclosures that will reflect how
much of their assetsare in reserve and not available for use. If
these analyses were not done in thepast, some results may be
surprising.
NFPs will have to decide whether they should report a classified
statement offinancial position.
If not previously formalized, NFPs will now have to have an
established plan inplace to report on availability of unrestricted
liquid assets as of the date of thestatement of financial position
to meet operating cash needs within one year ofthe statement
date.
NFPs may want to look at establishing an operating reserve as
part of its processof managing liquidity. We suggest looking at the
Net Operating Reserve InitiativeProject.
-
32 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Expenses
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 33
Expense Reporting
Report expenses, either on the face of financial statements or
in the notes, by:
• Function *• Natural classification• Analysis (disaggregate
function by nature)• Cannot be presented as supplemental
information* currently required in GAAP
NFPs are now required to provide qualitative disclosures about
methods used to allocate costs among program activities and
supporting services
ASU 2016-14 also provides enhanced guidance on allocations from
management and general (M&G) expenses
• Key concept: direct conduct or direct supervision
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 34
Expense Reporting
Additional Information
• If expenses are reported in other line items within the
statement of activities (e.g., salaries are included in costs of
goods sold) they should be included in the functional reporting
schedule by their natural classification.
• External and direct internal investment expenses that are
netted against investment return should not be included in the
functional expense analysis.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 35
For example: 958-205-55-21 Note F (Page 66 of ASU)
Expenses By Both Nature and Function
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 36
Management and General Expenses (958-720-45-7)
Management and general activities include the following:
a. Oversightb. Business managementc. General recordkeeping and
payrolld. Budgetinge. Financingf. Soliciting funds other than
contributions and membership dues (see examples included in above
section) g. Administering government, foundation, and similar
customer-sponsored contracts, including billing and collecting fees
and grant and contract financial reporting
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 37
Management and General Expenses (958-720-45-7)
Management and general activities include the following
(continued):
h. Disseminating information to inform the public of the NFP’s
stewardshipof contributed fundsi. Making announcements concerning
appointmentsj. Producing and disseminating the annual reportk.
Employee benefits management and oversight (human resources)l. All
other management and administration except for direct conduct
ofprogram services (see paragraphs 958-720-55-171-55-176 for
examples)
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 38
Management and General Expenses
“The costs of oversight and management usually include the
salaries
and expenses of the governing board, the chief executive officer
of
the NFP, and the supporting staff. If such staff spend a portion
of
their time directly conducting or supervising program services
or
categories of other supporting services, however, their salaries
and
expenses shall be allocated among those functions.”
(958-720-45-8)
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 39
Direct Conduct or Direct Supervision
“Activities that represent direct conduct or direct supervision
of
program or other supporting activities require allocation
from
management and general activities. Additionally, certain costs
benefit
more than one function and, therefore, shall be allocated.
For
example, information technology generally can be identified
as
benefiting various functions, such as management and general
(for
example, accounting and financial reporting and human
resources),
fundraising, and program delivery. Therefore, information
technology
costs generally would be allocated among the functions
receiving
direct benefit.” (958-720-45-2A)
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 40
Direct Conduct or Direct Supervision
Case A in ASU: Chief Executive Officer Allocation958-720-55-172:
The broad responsibilities of a chief executive officergenerally
include administrative and programmatic oversight. At
Not-for-Profit Entity A (NFP A), the chief executive officer spends
a portionof time directly overseeing the research program.
Additionally, aportion of time is spent with current and potential
donors onfundraising cultivation activities. A portion of the chief
executiveofficer’s compensation and benefits and other expenses
would beallocated to the research program and to the fundraising
functionrepresenting the portion of time spent on those activities
because theyreflect direct conduct or direct supervision. If the
remainder of thechief executive officer’s time is spent indirectly
supervising the otherareas of NFP A, including the administrative
areas, those activitieswould not constitute direct conduct or
direct supervision, and theratable portion of compensation and
benefit amounts would remain inmanagement and general
activities.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 41
Direct Conduct or Direct Supervision
Case C in ASU: Human Resources Department
Allocation958-720-55-174 The human resources department at
Not-for-ProfitEntity C (NFP C) generally is involved in the
benefits administration forall personnel of NFP C. The human
resources department’s relatedcosts would not be allocated to any
specific program. Rather, thosecosts would remain a component of
management and general activitiesbecause benefits administration is
a supporting activity for the entireentity.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 42
Example Disclosure for Expense Allocation Disclosure
NOTE X. METHODS USED FOR ALLOCATION OF EXPENSES FROM MANAGEMENT
AND GENERAL ACTIVITIES (ASU 958-720-55-176)
The financial statements report certain categories of expenses
that areattributable to one or more program or supporting functions
of the Organization.Those expenses include depreciation and
amortization, the president’s office,communications department, and
information technology department.Depreciation is allocated based
on square footage, the president’s office isallocated based on
estimates of time and effort, certain costs of thecommunications
department are allocated based on estimates of time and effort,and
the information technology department is allocated based on
estimates oftime and costs of specific technology utilized.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 43
Implementation Issues – Reporting of Expenses
Nonprofits should review their allocation methodologies to
determine if there are anychanges that are necessary to comply with
the ASU.
Once the allocation methodologies are implemented, nonprofits
should decide how topresent this analysis in their financial
statements and develop the format.
Nonprofits may need to evaluate the different programs and
supporting activities todetermine if the methodology and
presentation is complete and accurate.
Nonprofits will also have to develop wording for its allocation
methodology disclosure.
In developing the disclosures, a nonprofit should assess which
activities constitutedirect conduct or direct supervision of a
program or supporting function, and,therefore require an allocation
of costs.
-
44 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Investment Return
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 45
Reporting of Investment Return
Net presentation of investment expenses against investment
return on the face of the statement of activities
• Netting limited to external and direct internal expenses
Disclosure of investment expenses no longer required
No longer require disclosure of investment income components
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 46
Investment Return
Direct internal investment expenses involve the direct conduct
or directsupervision of the strategic and tactical activities
involved in generatinginvestment return including:• Salaries,
benefits, travel, and other costs associated with the officer
and
staff responsible for the development and execution of
investmentstrategy.
• Allocable costs associated with internal investment management
andsupervising, selecting, and monitoring of external investment
managementfirms.
Direct internal investment expenses do not include items that
are notassociated with generating investment return. For example,
the costsassociated with unitization and other such aspects of
endowmentmanagement would not be allocated.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 47
Implementation Issues – Reporting of Investment Return
Only the net amount of the investment return related to total
return investing isrequired to be presented in the statement of
activities.
Programmatic investing, or any financial activity that directly
carries out anonprofit’s mission or purpose, such as a loan made to
lower-income individualsto promote home ownership is not included
in this net presentation.
To comply with this presentation, organizations need to fully
understand thedefinitions of these terms and then consider how to
appropriately and accuratelycapture this information.
Accounting for investment expenses and the related allocation of
costs is aprocess that organizations will have to develop to
properly present theseinvestment costs under the provisions of the
ASU. The complexity will depend onthe type of organization and the
amount and nature of their investments.
-
48 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Cash Flow Statement
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 49
Cash Flow Statement
Continue to allow free choice between the Direct Method and the
Indirect Method • However the Indirect Reconciliation will no
longer be required if the NFP
chooses to use the Direct Method
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 50
Implementation Issues – Cash Flow Statement
Discussion should be held among management and those charged
withgovernance on current method of cash flow and determination of
whether anychanges will be made in terms of direct versus indirect
methods.
Discussion should include the pros and cons of both methods.
If determination is made to switch to alternative cash flow
method,information gathering should take place to ensure the
information is accessiblefor the desired reporting structure.
-
51 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Implementation Reminders
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 52
Early Adoption and Transition
Presentation of Financial Statements of NFPs, ASU 2016-14
Early Adoption: Permitted, but must apply the regular transition
provisions
Transition: • For year of adoption: apply all provisions.• For
comparative years presented: apply all provisions, except can
choose
not to present for the prior year(s) presented:- Analysis of
expenses by nature and function, and/or- Disclosures around
liquidity and availability of resources
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 53
Important Notes
NFPs are already permitted to incorporate many of the changes in
the ASU. The only changes that cannot be done without formally
adopting the ASU are:
(1) Presenting one class of restricted net assets (consolidating
temporarily and permanently restricted)
(2) Underwater endowment presentation(3) Eliminate disclosures
of investment return components and netted expenses(4) Eliminate
requirement to provide indirect reconciliation if using direct
method for operating cash flows
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 54
Implementation Issues - General
Each NFP needs to develop an implementation plan for ASU
2016-14.
Policies and procedures may have to be updated in order to
comply with theFASB update. This should be done as early as
possible and not wait until theend of the first fiscal year under
implementation.
-
55 Financial Statements Presentation for Nonprofits –
Implementation Perspective
How to Get Ready – Items to Consider
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 56
How to Get Ready – Items to Consider! Item #1
Financial Report changes
Consider whether it would be helpful to
prepare a “classified” Statement of Financial
Position
Revise report columns to reflect new net asset
classes
Determine whether your organization wants to present
comparative
statements in the year of adoption
Determine whether your organization wants to
present direct or indirect method of cash flow
statement
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 57
How to Get Ready – Items to Consider! Item #2
Board-designated
funds
Does the policy outline how board-designatedfunds are funded
and
drawn down?
Does your organization have a policy for the
commitment of board-designated funds?
Does the board periodically review disbursements from
board designated funds?
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 58
How to Get Ready – Items to Consider! Item #3
Endowment Spending
Has your organization followed its own
endowment spending policy?
How are appropriationamounts determined?
What is your board’s interpretation of its ability to allow
spending from donor-
restricted endowment funds if amounts fall below original
gift
amounts?
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 59
How to Get Ready – Items to Consider! Item #4
Liquidity Management
What level of financial assets does your
organization strive to maintain for daily
requirements?
What resources are available for unanticipated
needs?
What is the policy for how cash in excess of daily
requirements is handled?
How does your organization manage
liquidity?
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 60
How to Get Ready – Items to Consider! Item #5
Cost Allocation
Methodologies
How is your organization‘s allocation policy aligned
with the clarified definition of Management
and General?
How are salaries of supporting staff
allocated?
Understand how costs are currently allocated among
program and support functions
Which expenses are based on direct costs and
which are allocated?
Develop a memo of your allocation
process. This will be helpful in developing your policy
footnote.
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 61
How to Get Ready – Items to Consider! Item #6
New Footnote
Disclosures
Prepare qualitative and quantitative
information on liquidity and cash availability
Prepare composition of net assets with donor
restrictions disclosures
Prepare expense analysis with disclosure
of cost allocation methods
Prepare board-designated assets
disclosures
Prepare underwater endowment funds
disclosures
Prepare operating measures disclosures
-
62 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Resources
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 63
Resources• BDO’s Institute for Nonprofit Excellence Resource
Center for our FASB Financial
Reporting Guidance page for information on ASU 2016-14 that
includes:
podcasts and videos articles and blog posts Links to FASB
Resourceshttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/fasb-financial-reporting
https://www.bdo.com/resource-centers/institute-for-nonprofit-excellencehttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/fasb-financial-reportinghttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/fasb-financial-reporting
-
Financial Statements Presentation for Nonprofits –
Implementation Perspective 64
Resources
• BDO’s Publication:
How to Read Nonprofit Financial Statements: A Practical
Guide
https://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/book-promo
https://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/book-promohttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/book-promohttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/book-promohttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/book-promohttps://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/book-promo
-
65 Financial Statements Presentation for Nonprofits –
Implementation Perspective
Questions?
FINANCIAL STATEMENTS PRESENTATION �FOR NONPROFITS –
IMPLEMENTATION PERSPECTIVE With you today Presentation of Financial
Statements of NFP Entities (ASU 2016-14)Key Provisions of ASU
2016-14Objectives and Effective DateNFP Financial Statements
Project—Key Objectives (recommended by FASB’s NFP Advisory
Committee (NAC))Effective DateNet AssetsNet AssetsExample Effect on
Statement of Financial PositionExample Effect on Statement of
Financial PositionExample of Effect on Statement of Activities -
Columnar Format�Example of Effect on Statement of Activities -
Columnar Format�Disclosures Related to Net AssetsDisclosures
Related to Net AssetsNet Asset Disclosure Example“Underwater”
EndowmentsOperating Measure: Improved DisclosuresExample of
Operating Measure PresentationExample of Operating Measure
PresentationImplementation Issues – Net AssetsExpiration of Capital
RestrictionsImplementation Issues – Capital
RestrictionsLiquidityLiquidity and Availability of
ResourcesLiquidity and Availability of ResourcesLiquidity and
Availability of ResourcesQuantitative and Qualitative Liquidity and
Availability of Resources Disclosure ExampleQuantitative and
Qualitative Liquidity and Availability of Resources Disclosure
ExampleQuantitative Disclosure of Financial Asset
AvailabilityImplementation Issues –Liquidity and
AvailabilityExpensesExpense ReportingExpense ReportingExpenses By
Both Nature and Function�Management and General Expenses
(958-720-45-7)Management and General Expenses
(958-720-45-7)Management and General Expenses Direct Conduct or
Direct SupervisionDirect Conduct or Direct SupervisionDirect
Conduct or Direct SupervisionExample Disclosure for Expense
Allocation DisclosureImplementation Issues – Reporting of
ExpensesInvestment Return�Reporting of Investment ReturnInvestment
ReturnImplementation Issues – Reporting of Investment ReturnCash
Flow StatementCash Flow StatementImplementation Issues – Cash Flow
StatementImplementation RemindersEarly Adoption and
TransitionImportant NotesImplementation Issues - GeneralHow to Get
Ready – Items to ConsiderHow to Get Ready – Items to Consider! �
Item #1How to Get Ready – Items to Consider! � Item #2How to Get
Ready – Items to Consider! � Item #3How to Get Ready – Items to
Consider! � Item #4How to Get Ready – Items to Consider! � Item
#5How to Get Ready – Items to Consider! � Item
#6ResourcesResourcesResourcesQuestions?