New Not-for-Profit Reporting Standards - AIRI · indirect method • If the direct method is used, an indirect reconciliation must also be presented New ASU • No change –still

AIRI 2017 Annual MeetingFocus Group: Finance

October 1, 2017

New Not-for-Profit Reporting

Standards

Michael Labosier, CPA, CGMA, CMA

Director of Finance and Accounting

Benaroya Research Institute at Virginia Mason

[email protected]

Facilitator

ASU 2016-14: Not-for-Profit Entities (Topic 958) – Presentation of Financial

Statements of Not-for-Profit Entities

Applies to all Not-for-Profit entities

Effective for calendar year 2018 or fiscal years ending in 2019

Objectives are to address:

• Complexity in net asset classification

• Inconsistencies in the reporting of expenses

• An impediment to using the direct method statement of cash flows

• Inadequate information regarding liquidity and availability of financial assets

The New ASU

Reporting Changes in Five Key Areas

1

Net Asset Classes

2

Investment Return

3

Expense Reporting

4

Statement of Cash Flows

5

Liquidity & Availability

1. Classification of Net Assets

Current GAAP• Three net asset classes:

1. Unrestricted2. Temporarily Restricted3. Permanently Restricted

• Plus Disclosures to describe:• Donor restrictions

New ASU• Two net asset classes:

1. Without Donor Restrictions2. With Donor Restrictions

• Plus Disclosures to describe:• Donor restrictions• Board designations

Current GAAP“Underwater” Endowments reflected in Unrestricted Net

Assets

New ASU“Underwater” Endowments reflected in Net Assets With

Donor Restrictions

2. Reporting of Investment Return

Current GAAP

• Two options for reporting investment expenses:1. Netted against

investment return2. Included in expenses

(gross)

• And required to disclose components of investment return including investment income, gains and losses, and any netted investment expenses

New ASU

• No Choice – Must report all external and direct internal investment expenses netted against investment return

• No longer required to disclose the composition of investment return and the amount of investment expenses

3. Expense Reporting

Current GAAP

• All NFPs must report expenses by function (program services, management and general, fundraising)

• Voluntary health and welfare entities also required to report expenses by natural classification (salaries and wages, supplies, depreciation, etc.)

New ASU

• All NFPs must report expenses by function AND by natural classification in one location

• Plus provide a qualitative description of the methods used to allocate expenses

4. Statement of Cash Flows

Current GAAP

• Cash flows can be presented using the direct method or the indirect method

• If the direct method is used, an indirect reconciliation must also be presented

New ASU

• No change – still “free choice” to present cash flows using either the direct method or the indirect method

• But if the direct method is used, an indirect reconciliation is no longer required

5. Liquidity & Availability of Financial Assets

Current GAAP

• Liquidity disclosed through:

• Balance sheet classification or sequencing

• Disclosures about the liquidity of balance sheet items and any restrictions on their use

New ASU

• Must provide the following disclosures:

1) Qualitative information on how liquid resources and liquidity risk are managed

2) Quantitative information on the availability of financial assets to meet the next year’s cash needs

FASB ASU 2016-14

AICPA Not-for-Profit Resources

KPMG

– Defining Issues 16-29 FASB Changes Presentation of Not-for-Profit Financial

Statements

– Issues in-Depth – Not-for-Profit: Presentation of financial statements, October 2016

Clark Nuber – website blog – see March 9, 2017 posting for links to ten

articles on this topic

CliftonLarsonAllen –ASU 2016-14 Checklist

Resources