The financial reporting landscape for nonprofit organizations continues to change as standard setting organizations refine and enhance financial reporting requirements to increase transparency. The implementation of Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities, Presentation of Financial Statements for Not-for-Profit Entities, has ushered in several changes that nonprofits need to follow in the reporting process. One of the key changes made was the new requirement to make liquidity disclosures. Essentially, organizations are now required to provide financial statement readers with disclosures about liquidity including liquidity risk, restrictions and overall availability of assets. The goal is to provide not only consistency in reporting, but also give donors and others a clearer picture of the organization’s financial position and restrictions on when certain assets are available and can be used. To help clients, prospects and others understand the changes and how it will impact them, Wilson Lewis has provided a summary of key details below.
New Disclosure Formats
The regulations require that organizations make liquidity disclosures in both qualitative and quantitative formats. It’s important to note that both disclosures must only include assets available within one year of the statement of financial position date. There are different rules governing what information needs to be included as outlined below.
Preparing for the New Disclosures
Depending on how a nonprofit identifies and reports assets will determine how difficult it will be to adopt the new regulations. Organizations will need to determine whether current assets presented in their financial statements would qualify as financial assets available to support expenses within one year from the statement of financial position date. If current assets include donations where cash has been received but restricted for use to meet general operating expenses, they should be excluded even in cases where the cash has already been received.
To meet the new requirement, it’s necessary to review financial assets to determine which qualify for reporting under the new standard. It’s important to review the organization’s general ledger to determine what changes can be made to enable easier tracking for immediate and long-term purposes. The next step is to review documentation to identify what financial assets may have limitations or other restrictions that exclude them. Finally, identify the total assets available to meet the organization’s needs, for the year. This simple process can help determine the liquidity information that needs to be reported under the new standards.
Contact Us
The changes to financial reporting are designed to provide clarity and transparency into an organization’s ability to meet annual financial needs. Depending on your organization’s financial reporting process, the transition to the new standard may be difficult. It’s important to consult with a qualified advisor to guide your efforts to comply. If you have questions about the new liquidity disclosures or need assistance with other reporting changes, Wilson Lewis can help. For additional information call us at 770-476-1104 or click here to contact us. We look forward to speaking with you soon.
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