New Not-for-Profit Reporting Standards - AIRI · indirect method • If the direct method is used,...
Transcript of New Not-for-Profit Reporting Standards - AIRI · indirect method • If the direct method is used,...
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
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