0September 26, 2017September 26, 2017
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4 Steps to Create Exceptional Liquidity Disclosures

ChessAlthough financial professionals serving not-for-profit organizations still have time to prepare for implementation of the Financial Accounting Standards Board’s (FASB’s) new not-for-profit financial reporting standard, it’s important to consider and discuss the impacts of the new guidance with board members.

In June, we published a blog post answering common questions related to implementing the new liquidity disclosures required under the recently-issued not-for-profit financial reporting standard. This post discusses steps for making that implementation process smooth and effective. 

The new standard requires not-for-profits to provide both qualitative and quantitative information about liquidity and availability of resources as follows:

  • Qualitative information that communicates how the not-for-profit manages its available liquid resources to meet cash needs for general expenditures within one year of the balance sheet date.

  • Quantitative information that communicates the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date. The availability of a financial asset may be affected by its nature; external limits imposed by donors, laws and contracts with others; and internal limits imposed by governing boards.

When contemplating these disclosure requirements, not-for-profits should consider the following steps:

  1. Determine the message you want to convey to your stakeholders.

Does your organization have ample resources to fund activities over the next 12 months? If so, you may want to make that clear in the disclosure. On the other hand, perhaps your organization struggles to maintain sufficient resources to meet general expenditures. In that situation, you will want to make your related action plan clear. Some not-for-profits have significant capital projects that may have resources set aside to fund them. In those cases, consider discussing those resources and the anticipated timing of their use.

  1. Review your current procedures around board designation of net assets.

With the standard’s emphasis on board-designated net assets, organizations may wish to review and document their procedures for designating net assets, perhaps even creating a board designations policy if one does not already exist. It also may be a good time to revisit existing board designations to determine if they still make sense.

  1. Decide on the best presentation approach for your organization.

The guidance requires an organization to provide information about the availability of financial assets at the balance sheet date to meet cash needs for general expenditures within one year; however, there is no prescribed presentation for that information. The standard provides a few example disclosures, but they may not resonate with every not-for-profit. The Not-for-Profit Section offers example disclosures. Independent auditors may also have samples you can use as a starting point.

  1. Evaluate whether any changes to accounting and reporting systems will be necessary in order to easily capture information for disclosures.

Once you have determined how you want to present the required information, you’ll need to assess your supporting systems and technology to determine whether any changes or additions will be required to easily capture the information you wish to disclose.  

No matter the size or complexity of your organization, consider starting the discussion now to prepare for implementation of the new liquidity and availability disclosures. Being proactive will boost efficiency internally and help to ensure your disclosures provide meaningful information to your financial statement users.

FASB’s new not-for-profit financial reporting standard is effective for annual financial statements issued for fiscal years beginning after December 15, 2017 and for interim periods within fiscal years beginning after December 15, 2018. Visit aicpa.org/nfp to learn more.

Karen Craig, CPA. Karen is a consultant providing technical accounting, reporting, finance and analytical expertise to not-for-profits with a focus on higher education. She volunteers on the AICPA Not-for-Profit Advisory Council and is an ex-officio member of the AICPA Not-for-Profit Industry Expert Panel. Karen also is a technical advisor to the Accounting Principles Council of the National Association of College and University Business Officers (NACUBO).



Source: AICPA