1. New Nonprofit Reporting Standard
Rob Eby, CPA, CGMA and Mark Robins, CPA
FASB ASU

2. Today’s Speakers Rob Eby Mark Robins Partner Senior Manager
Nonprofit and Associations
Mark Robins
Senior Manager
Nonprofit and Associations

3. Learning Objectives
Compare and contrast appropriate formats to present and disclose net assets with and without donor restrictions.
Discuss guidelines for reporting qualitative and quantitative information regarding liquidity and availability of assets.
Recall the other five changes from the ASU: classification and disclosures of underwater endowment funds, expense reporting, statement of cash flows, investment return and release of restrictions on capital assets.

4. Polling Question
What type of exempt organization are you associated with?
Association
Charity
Church
School
Other

5. Polling Question How long have you worked with exempt organizations?
0-1 years
2-5 years
5-10 years
10-20 years
21+ years

6. ASU 2016-14- Presentation of Financial Statements of Not-for-profit Entities
Effective for fiscal years beginning after December 15, 2017
Retrospective application
Option to omit the following for periods before adoption:
Statement of functional expenses
Separate presentation of expenses by function and natural class is still required.
Does not apply to voluntary health and welfare orgs.
Disclosures about liquidity and availability of resources
Must disclose effect from the adoptions of this ASU.
For example December 31, 2018 or June 30, 2019
Option to omit if presenting comparative financial during the adoption year.

7. Overview of changes – discussion topics
Change 1: Net asset classes
Change 2: Liquidity and availability of resources
Change 3: Classification and disclosures of underwater endowment funds
Change 4: Expense reporting
Change 5: Statement of cash flows
Change 6: Investment return
Change 7: Release of restrictions on capital assets
These seven areas are directly from the changes made in the standard.

8. Change 1: Net asset classes
Two net asset classes
Net assets without donor restrictions
Net assets with donor restrictions
What to show on the face of the financial statements:
Statement of activities- change and balance of both classes
Statement of the financial position-total of the two net asset classes

9. Net asset classes Minimum classification scheme
Option to further break out net asset classes
Ex: “maintained in perpetuity”
Ex: “expected to be spent over time”

10. Net asset classes – Format A
If contributions receivable for the purpose of long-lived assets. They would need to separated similar to cash and cash equivalents.

11. Net asset classes – Format A

12. Net asset classes – Format B

13. Net asset classes – Format B Summary

14. Net asset classes – Format C (part 1)

15. Net asset classes – Format C (part 2)

16. Polling Question
Which of the net asset classification formats do you think would work best for your organization?
Format A (single-column format)
Format B (multicolumn format)
Format C (two statement format)
Other

17. Net asset classes – disclosures
How restrictions affect the use of the resources
Nature and amounts of different types of restrictions
How and when, if ever, the resources (net assets) can be used
Amounts and purposes of “self-imposed” limits on net assets without restrictions
i.e. board designations, appropriations, similar actions
Transfers to and from operations of board designated funds if statement of activities is split between operating and non-operating

18. Net asset classes- summary
Before ASU
3 net asset classes:
Unrestricted
Temporarily Restricted
Permanently Restricted
Show on face:
Balance in each class in SFP
Change in each class in SOA
After ASU
2 net asset classes:
Without donor restrictions
With donor restrictions
Show on face:
Balance in each class in SFP
Change in each class in SOA

19. Net asset classes- summary
Before ASU
Disclose:
Self-imposed may be provided
Nature and amounts of permanently and temporarily restricted net assets
After ASU
Disclose:
How restrictions affect use of resources
Nature and amounts of restrictions
Amounts and purposes of self-imposed limits
Transfers to and form operations of board designated if SOA is split between operating and non-operating

20. Net asset classes – donor restricted year end balance disclosure

21. Net asset classes – donor restricted year end balance disclosure

22. Net asset classes – restriction release disclosure

23. Net asset classes – board designated disclosure

24. Change 2: Liquidity and availability of resources
New disclosure related to liquidity of resources
Qualitative and quantitative information about how the entity manages resources
No guidance on required specific information
Deficiencies in the transparency and utility of information useful in
assessing an entity’s liquidity caused by potential misunderstandings and
confusion about the term unrestricted net assets and how restrictions or
limits imposed by donors, grantors, laws, contracts, and governing
boards affect an entity’s liquidity, classes of net assets, and financial
performance

25. Liquidity and availability of resources
Display the following on the statement of financial position or the notes:
Nature and amounts of limitations on the use of cash and cash equivalents
Contractual limitations on the use of particular assets from:
Debt arrangements
Self-insurance funding arrangements
Collateral arrangements
Reserve requirements for CGAs
Additional information about liquidity
a. Sequencing assets according to their nearness of conversion to cash and
sequencing liabilities according to the nearness of their maturity and
resulting use of cash
b. Classifying assets and liabilities as current and noncurrent, as defined by
Subtopic (required by paragraph for statements of
financial position prepared by not-for-profit, business-oriented health care
entities)
c. Disclosing in notes to financial statements any additional relevant
information about the liquidity or maturity of assets and liabilities,
including restrictions on the use of particular assets.

26. Liquidity and availability of resources
Must disclose qualitative information that:
Is useful in assessing the entity’s liquidity
Communicates how the entity manages its resources to meet cash needs for expenditures
Must disclose quantitative information regarding:
Availability of financial assets at the BS date to meet cash needs for “general” expenditures
Availability of a financial asset may be affected by:
Its nature
External limits imposed by donors, laws, and contracts with others
Internal limits imposed by governing board decisions
Disclosure focuses on expenditures within one year of the BS date
Financial assets - asset whose value is derived from a contractual claim.
Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following:
a. Receive cash or another financial instrument from a second entity
b. Exchange other financial instruments on potentially favorable terms with the second entity.

27. Liquidity and availability of resources
Disclosures may relate to:
Donor restrictions which may make certain resources unavailable
Goals for maintaining financial assets
Policies for investing excess cash
Policies for spending from board designated quasi-endowments
Contractual agreements that limit availability of assets
Lines of credit that could be drawn

28. Liquidity and availability of resources
ASU does not define “general expenditures”
May need to disclose:
How general expenditures are determined by the entity
How availability of financial resources are determined by the entity

29. Polling Question What would you consider to be a general expense?
(write in response)

30. Liquidity and availability of resources – Example 1

31. Liquidity and availability of resources – Example 1

32. Liquidity and availability of resources – Example 2
In thousands. ($4.5 million in cash)

33. Liquidity and availability of resources – Example 2

34. Liquidity and availability of resources – Example 3

35. Liquidity and availability of resources – Example 3

36. Liquidity and availability of resources – Example 3
NFPs and Board need to consider this disclosure when setting up board designations. Are there funds to support this? What is the tension here?

37. Reporting endowment funds
Donor term or permanent endowment – net assets with donor restrictions
Board designated – net assets without donor restrictions

38. Change 3: Classification and disclosure of underwater endowments
Underwater endowment defined:
A donor-restricted endowment fund for which the fair value of the fund at the reporting date is less than either the original gift amount or the amount required to be maintained by the donor or by law that extends donor restrictions.
New definition.

39. Classification and disclosure of underwater endowments
When a donor-restricted endowment fund is underwater:
Accumulated losses are included with the fund in net asset with donor restrictions.
i.e. the endowment fund’s balance is simply reduced

40. Classification and disclosure of underwater endowments
Must disclose the following, in the aggregate, for all for underwater endowments:
FV of the underwater endowment funds
Original endowment gift amount or level required to be maintained by the donor stipulations or by law
Amount of the deficiencies (A. less B.)

41. Classification and disclosure of underwater endowments
Must disclose:
Governing board’s interpretation of the laws affecting the ability to spend from underwater endowment funds
Policies for spending from underwater endowment funds
Actions taken during the period concerning appropriation from underwater endowment funds
Underwater endowment funds, which include required disclosures of
(1) an NFP’s policy, and any actions taken during the period,
concerning appropriation from underwater endowment funds, (2) the
aggregate fair value of such funds, (3) the aggregate of the original
gift amounts (or level required by donor or law) to be maintained, and
(4) the aggregate amount by which funds are underwater
(deficiencies), which are to be classified as part of net assets with
donor restrictions.

42. Change 4: Expense reporting
Must report information about all expenses in one location
On the face of the statement of activities
As a schedule in the notes
As a statement of functional expenses
Expenses may be reported by natural class, function or both on the statement of activities
Must disclose method(s) used to allocate costs among functions

43. Expense reporting
If expenses are reported by other than natural classification:
Ex: Salaries included in cost of goods sold
Ex: Facility rentals in special events reported as direct donor benefit.
That expense should be reported by its natural class in the functional analysis
Netted investment fees shall not be included in expenses
Program expenses is not a natural class.

44. Change 5: Statement of cash flows
No longer requires reconciliation to the indirect method if the direct method is used

45. Change 6: Investment returns
Report investment return net of external and direct internal investment expenses
No longer required to disclosed netted amounts
Just equals one number = Investment income
You can still disclose expense if you’d like.
Doesn’t relate to programmatic investing. That is making loans or investment for the purpose carrying out a NFP’s mission.
Investment expenses that are netted against investment return are prohibited from inclusion on the statement of functional expenses.

46. Polling Question
How often do you separately record mutual fund management fees?
- 1: Monthly
2: Annually
3: Never

47. Change 7: Release of restrictions on capital assets
Restricted capital assets- assets with a useful life longer than a year that are restricted by donor stipulations
Ex: Vehicle restricted for delivery
Ex: Building restricted for program usage
Before ASU restricted capital assets were released:
Over time similar to depreciation or
When placed in service

48. Release of restrictions on capital assets
Placed-in-service approach must be used now
Unless there are explicit donor stipulations
Gifts of cash or other assets restricted to acquire or construct a long-lived asset
Release net assets with donor restrictions once asset is placed-in-service.

49. Questions?