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Implementing FASB ASU 2016-14 Not-For-Profit Financial
Statement Reporting
THURSDAY, APRIL 18, 2019, 1:00-2:50 pm Eastern
FOR LIVE PROGRAM ONLY
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FOR LIVE PROGRAM ONLY
THURSDAY, APRIL 18, 2019
Implementing FASB ASU 2016-14 Not-For-Profit Financial Statement Reporting
Kenneth Euwema, Vice President, Controller
United Way Worldwide, Alexandria, Va.
ken.euwema@unitedway.org
Lee Klumpp, Director
BDO USA, Bethesda, Md.
lklumpp@bdo.com
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY
OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction
described in the associated materials we provide to you, including, but not limited to,
any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are
subject to change. Applicability of the information to specific situations should be
determined through consultation with your tax adviser.
5 ASU 2016-14 Not-For-Profit Reporting Standards
Financial Accounting Standards Board’s ASU
2016-14 Not-For-Profit Reporting Standards
ASU 2016-14 Not-For-Profit Reporting Standards6
Key Provisions of ASU 2016-14
Net Asset Classification
Updated net asset classification scheme to two classes, changes to
underwater endowment accounting, enhanced disclosures
Liquidity & Availability
Quantitative & qualitative disclosures about liquidity and
availability of resources Expenses
Requirement to report expenses by function (already required), nature,
and an analysis showing the relationship between function and
nature
Statement of Cash Flows
Continue to allow direct or indirect method for operating cash flows; indirect reconciliation no longer
required for direct method
Investment Return
Present investment return net of external and direct internal
investment expenses, no longer required to disclose netted
expenses
7 ASU 2016-14 Not-For-Profit Reporting Standards
Objectives and Effective Date
ASU 2016-14 Not-For-Profit Reporting Standards8
Update, not overhaul, the current model
Improve net asset classification scheme
Improve information in financial statements and notes about:
• Financial performance
• Cash flows
• Liquidity
Better enable NFPs to “tell their financial story”
Provide more useful information to donors and other users of the financial
statements
NFP Financial Statements Project—Key Objectives (recommended by FASB’s NFP Advisory Committee (NAC))
8
ASU 2016-14 Not-For-Profit Reporting Standards9
Effective Date
Presentation of Financial Statements of NFPs, ASU 2016-14
Effective Date: For fiscal years beginning after 12/15/2017
Interim financials the following year
• Calendar year ending 12/31/18
• Fiscal year ending 6/30/19
10 ASU 2016-14 Not-For-Profit Reporting Standards
Net Assets
ASU 2016-14 Not-For-Profit Reporting Standards11
Net Assets
UnrestrictedTemp.
RestrictedPerm.
Restricted
Without Donor Restrictions
With Donor Restrictions
Amount, purpose, and type of board
designations *
Nature and amount of donor restrictions
Current
GAAP
Proposed GAAP
Disclosures
+
* New disclosure requirement
ASU 2016-14 Not-For-Profit Reporting Standards12
Example Effect on Statement of Financial Position
Note: Shaded lines are required to be presented.
Source: ASU 958
Not-for-Profit Entity A
Statements of Financial Position
June 30, 20X1 and 20X0
(in thousands)
20X1 20X0
Assets:
Cash and cash equivalents $ 4,575 $ 4,960
Accounts and interest receivable 2,130 1,670
Inventories and prepaid expenses 610 1,000
Contributions receivable 3,025 2,700
Short-term investments 1,400 1,000
Assets restricted to investment in land, buildings, and equipment 5,210 4,560
Land, buildings, and equipment 61,700 63,590
Long-term investments 218,070 203,500
Total assets $ 296,720 $ 282,980
Liabilities and net assets:
Accounts payable $ 2,570 $ 1,050
Refundable advance - 650
Grants payable 875 1,300
Notes payable - 1,140
Annuity trust obligations 1,685 1,700
Long-term debt 5,500 6,500
Total liabilities 10,630 12,340
Net assets:
Without donor restrictions (Note DD) 92,600 84,570
With donor restrictions (Note B) 193,490 186,070
Total net assets 286,090 270,640
Total liabilities and net assets $ 296,720 $ 282,980
ASU 2016-14 Not-For-Profit Reporting Standards13
Example Effect on Statement of Financial Position
Note: Shaded lines are required to be presented.
Source: ASU 958
Net assets:
Without donor restrictions (Note DD) 92,600 84,570
With donor restrictions (Note B) 193,490 186,070
Total net assets 286,090 270,640
Total liabilities and net assets $ 296,720 $ 282,980
ASU 2016-14 Not-For-Profit Reporting Standards14
Note: Shaded lines are required to be presented.
Source: ASU 958-205-55-14
EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR FORMAT
Example of Effect on Statement of Activities -
Columnar Format
ASU 2016-14 Not-For-Profit Reporting Standards15
Note: Shaded lines are required to be presented.
Source: ASU 958-205-55-14
EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR FORMAT
Example of Effect on Statement of Activities -
Columnar Format
ASU 2016-14 Not-For-Profit Reporting Standards16
Disclosures Related to Net Assets
Amounts and purposes of governing board designations, appropriations, and
similar actions that result in self-imposed limits on the use of resources without
donor-imposed restrictions as of the end of the period.
Composition of net assets with donor restrictions at the end of the period and
how the restrictions affect the use of resources.
Additional information related to underwater endowment funds.
ASU 2016-14 Not-For-Profit Reporting Standards17
Disclosures Related to Net Assets
Information about the nature and amounts of different types of donor-imposed
restrictions should be reported either on the face of the statements or in the
notes. Separate line items that distinguish between the different types of
restrictions may be used such as:
• Assets, such as land or works of art, donated with stipulations that they
be used for a specified purpose, be preserved, and not be sold.
• Assets donated with stipulations that they be invested to provide a
permanent source of income.
• Support of particular operating activities.
• Investment for a specified term.
• Use in a specified future period.
• Acquisition of long-lived assets.
ASU 2016-14 Not-For-Profit Reporting Standards18
Net Asset Disclosure Example
Excerpt from ASC 958-210-55-3
With donor restrictions
Perpetual in nature 200,000$
Purpose restricted 1,840,000
Time-restricted only, for periods after 20X1 150,000
2,190,000$
Without donor restrictions
Designated by the Board for [purpose] 1,000,000$
Undesignated 24,000,000 25,000,000
Net assets 27,190,000$
ASU 2016-14 Not-For-Profit Reporting Standards19
“Underwater” Endowments
19
• To be reflected in net assets with donor restrictions rather than in net assets without donor restrictions
Revised net asset classification
• In addition to aggregate amounts by which funds are underwater (current GAAP), also disclose aggregate of original gift amounts (or level required by donor or law) for such funds, fair value, and any governing board policy or decision to reduce or not spend from such funds.
Enhanced disclosures
ASU 2016-14 Not-For-Profit Reporting Standards20
Operating Measure: Improved Disclosures
For those NFPs that utilize an operating measure and show governing
board designations, appropriations, and similar actions (internal
transfers) in the measure:
These NFPs must report these types of internal transfers
appropriately disaggregated and described by type (either on the
face of the financial statements or in the notes).
ASU 2016-14 Not-For-Profit Reporting Standards21
Example of Operating Measure Presentation
Source: ASU 958-225-55-17
ASU 2016-14 Not-For-Profit Reporting Standards22
Example of Operating Measure Presentation
Source: ASU 958-225-55-17
ASU 2016-14 Not-For-Profit Reporting Standards23
Implementation Issues – Net Assets
➢ In order to change from three classes of net assets to only two classes, NFPs will
have to perform a detailed review of their organization’s records to make sure
all funds are classified correctly.
➢ The new standard requires reporting of underwater amounts of donor-restricted
endowment funds in net assets with donor restrictions. The standard also
enhances disclosures about underwater endowments. Therefore, underwater
amounts previously reported in unrestricted funds must be reclassified to net
assets with donor restrictions.
➢ Subcategories of net assets classes should be established and reviewed with
audit committee, if organization wishes to report subcategories.
➢ Organizations should ensure policies are in place to reflect new disclosure
requirements in relation to net assets.
ASU 2016-14 Not-For-Profit Reporting Standards24
Expiration of Capital Restrictions
Gifts of cash restricted for acquisition or construction of PP&E
NFPs would be required to use the placed-in-service approach (no more
implied time restrictions) unless there is a donor explicit stipulation of a time
period for the use of assets
Reclassify any amounts from net assets with donor restrictions to net assets
without donor restrictions for such long-lived assets that have been placed in
service as of the beginning of the period of adoption (thus eliminating the
current option to release the donor-imposed restriction over the estimated
useful life of the acquired asset).
Approach for reporting expirations on gifts of capital assets:
Does your organization use the placed-in-service approach? If not, your
organization will have to adopt it, taking into account any donor explicit
stipulations
ASU 2016-14 Not-For-Profit Reporting Standards25
Implementation Issues – Capital Restrictions
➢When examining the effect of the ASU on your organization, you should look at
whether you have any contributions of long-lived assets that are being
reclassified over time without any explicit stipulation of a time period for the use
of the asset. If these assets have already been placed in service, the amount of
these long-lived assets should be reclassified from net assets with donor
restrictions to net assets without donor restrictions upon adoption of the ASU.
➢In addition, the organization will have to modify its policy with regard to the
receipt of contributions for the construction of long-lived assets or donated long-
lived assets. Upon adoption of the ASU, an organization will have to recognize
revenue without donor restrictions when the donated assets are placed in service
absent any explicit donor stipulations otherwise. In the past, organizations had
an option to either follow the placed-in-service approach or to place an implied
time restriction on the long-lived assets.
27 ASU 2016-14 Not-For-Profit Reporting Standards
Liquidity
ASU 2016-14 Not-For-Profit Reporting Standards28
Liquidity and Availability of Resources
NFPs required to
provide:
Qualitative information on how an NFP manages its liquid available resources and its liquidity risk (in
the notes)
Quantitative information that communicates the availability of an NFP’s financial assets at the
statement of financial position date to meet cash needs for general expenditures within one year (on
the face and/or in the notes)
Examples from early adopters demonstrate three ways to provide the required information
ASU 2016-14 Not-For-Profit Reporting Standards29
Liquidity and Availability of Resources
Qualitative
NFPs are required to communicate how they manage their liquid
resources available to meet cash needs for general expenditures
within one year of the date of the statement of financial
position. Additionally, NFPs should disclose any of the following:
a. Unusual circumstances, such as special borrowing
arrangements, requirements imposed by resource providers that
cash be held in separate accounts, and known significant
liquidity problems.
b. The fact that the NFP has not maintained appropriate
amounts of cash and cash equivalents to comply with donor-
imposed restrictions.
c. Information about significant limits resulting from
contractual agreements with suppliers, creditors, and others,
including the existence of loan covenants.
ASU 2016-14 Not-For-Profit Reporting Standards30
Liquidity and Availability of Resources
Quantitative
NFPs are required to communicate the availability of their
financial assets at the statement of financial position date
to meet cash needs for general expenditures within one
year (on the face and/or in the notes).
Availability of a financial asset may be affected by (1) its
nature, (2) external limits imposed by donors, grantors,
laws, and contracts with others, and (3) internal limits
imposed by governing board decisions.
ASU 2016-14 Not-For-Profit Reporting Standards31
Quantitative and Qualitative Liquidity and
Availability of Resources Disclosure Example
Source: ASU 958-210-55-8
ASU 2016-14 Not-For-Profit Reporting Standards32
Quantitative and Qualitative Liquidity and
Availability of Resources Disclosure Example
Source: ASU 958-210-55-8
Note T (Continued)
NFP A’s endowment funds consist of donor-restricted endowments and a quasi-endowment. Income
from donor-restricted endowments is restricted for specific purposes and, therefore, is not
available for general expenditure. As described in Note Y, the quasi-endowment has a spending
rate of 5 percent. $1.65 million of appropriations from the quasi-endowment will be available
within the next 12 months.
As part of NFP A’s liquidity management, it has a policy to structure its financial assets to be
available as its general expenditures, liabilities, and other obligations come due. In addition, NFP
A invests cash in excess of daily requirements in short-term investments. To help manage
unanticipated liquidity needs, NFP A has committed lines of credit in the amount of $20 million,
which it could draw upon. Additionally, NFP A has a quasi-endowment of $33 million. Although NFP
A does not intend to spend from its quasi-endowment other than amounts appropriated for
general expenditure as part of its annual budget approval and appropriation process, amounts
from its quasi-endowment could be made available if necessary. However, both the quasi-
endowment and donor-restricted endowments contain investments with lock-up provisions that
would reduce the total investments that could be made available (see Note X for disclosures about
investments).
ASU 2016-14 Not-For-Profit Reporting Standards33
Quantitative Disclosure of Financial Asset Availability
Financial assets, at year end* 234,410$
Less those unavailable for general expenditures within one year, due to:
Contractual or donor-imposed restrictions:
Restricted by donor with time or purpose restrictions (11,940)
Subject to apropriation and satisfaction of donor restrictions** (174,700)
Investments held in annuity trust (4,500)
Board designations:
Quasi-endowment fund, primarily for long-term investing** (36,600)
Amounts set aside for liquidity reserve (1,300)
Financial assets available to meet cash needs for general
expenditures within one year 5,370$
* Total assets, less nonfinancial assets (e.g., PP&E, inventory, prepaids)
** Excludes amounts that have been appropriated for next 12 months that do not have purpose restrictions
Source: ASU 958-205-55-21
ASU 2016-14 Not-For-Profit Reporting Standards34
Implementation Issues –Liquidity and Availability
➢NFPs will now have to show disclosures that will reflect how much of their assets
are in reserve and not available for use. If these analyses were not done in the
past, some results may be surprising.
➢NFPs will have to decide whether they should report a classified statement of
financial position.
➢If not previously formalized, NFPs will now have to have an established plan in
place to report on availability of unrestricted liquid assets as of the date of the
statement of financial position to meet operating cash needs within one year of
the statement date.
➢NFPs may want to look at establishing an operating reserve as part of its process
of managing liquidity. We suggest looking at the Net Operating Reserve Initiative
Project.
35 ASU 2016-14 Not-For-Profit Reporting Standards
Expenses
ASU 2016-14 Not-For-Profit Reporting Standards36
Expense Reporting
Report expenses, either on the face of financial statements or in the notes, by:
• Function *
• Natural classification
• Analysis (disaggregate function by nature)
• Cannot be presented as supplemental information
* currently required in GAAP
NFPs are now required to provide qualitative disclosures about methods used to
allocate costs among program activities and supporting services
ASU 2016-14 also provides enhanced guidance on allocations from management
and general (M&G) expenses
• Key concept: direct conduct or direct supervision
ASU 2016-14 Not-For-Profit Reporting Standards37
Expense Reporting
Additional Information
• If expenses are reported in other line items within the statement of activities
(e.g., salaries are included in costs of goods sold) they should be included in
the functional reporting schedule by their natural classification.
• External and direct internal investment expenses that are netted against
investment return should not be included in the functional expense analysis.
ASU 2016-14 Not-For-Profit Reporting Standards38
For example: 958-205-55-21 Note F (Page 66 of ASU)
Expenses By Both Nature and Function
ASU 2016-14 Not-For-Profit Reporting Standards39
Management and General Expenses (958-720-45-7)
Management and general activities include the following:
a. Oversight
b. Business management
c. General recordkeeping and payroll
d. Budgeting
e. Financing
f. Soliciting funds other than contributions and membership dues (see examples
included in above section)
g. Administering government, foundation, and similar customer-sponsored
contracts, including billing and collecting fees and grant and contract financial
reporting
ASU 2016-14 Not-For-Profit Reporting Standards40
Management and General Expenses (958-720-45-7)
Management and general activities include the following (continued):
h. Disseminating information to inform the public of the NFP’s stewardship
of contributed funds
i. Making announcements concerning appointments
j. Producing and disseminating the annual report
k. Employee benefits management and oversight (human resources)
l. All other management and administration except for direct conduct of
program services (see paragraphs 958-720-55-171-55-176 for examples)
ASU 2016-14 Not-For-Profit Reporting Standards41
Management and General Expenses
“The costs of oversight and management usually include the salaries
and expenses of the governing board, the chief executive officer of
the NFP, and the supporting staff. If such staff spend a portion of
their time directly conducting or supervising program services or
categories of other supporting services, however, their salaries and
expenses shall be allocated among those functions.” (958-720-45-8)
ASU 2016-14 Not-For-Profit Reporting Standards42
Direct Conduct or Direct Supervision
“Activities that represent direct conduct or direct supervision of
program or other supporting activities require allocation from
management and general activities. Additionally, certain costs benefit
more than one function and, therefore, shall be allocated. For
example, information technology generally can be identified as
benefiting various functions, such as management and general (for
example, accounting and financial reporting and human resources),
fundraising, and program delivery. Therefore, information technology
costs generally would be allocated among the functions receiving
direct benefit.” (958-720-45-2A)
ASU 2016-14 Not-For-Profit Reporting Standards43
Direct Conduct or Direct Supervision
Case A in ASU: Chief Executive Officer Allocation
The broad responsibilities of a chief executive officer generally include
administrative and programmatic oversight. At Not-for-Profit Entity A
(NFP A), the chief executive officer spends a portion of time directly
overseeing the research program. Additionally, a portion of time is
spent with current and potential donors on fundraising cultivation
activities. A portion of the chief executive officer’s compensation and
benefits and other expenses would be allocated to the research
program and to the fundraising function representing the portion of
time spent on those activities because they reflect direct conduct or
direct supervision. If the remainder of the chief executive officer’s
time is spent indirectly supervising the other areas of NFP A, including
the administrative areas, those activities would not constitute direct
conduct or direct supervision, and the ratable portion of compensation
and benefit amounts would remain in management and general
activities.
ASU 2016-14 Not-For-Profit Reporting Standards44
Direct Conduct or Direct Supervision
Case C in ASU: Human Resources Department Allocation
The human resources department at Not-for-Profit Entity C (NFP C)
generally is involved in the benefits administration for all personnel of
NFP C. The human resources department’s related costs would not be
allocated to any specific program. Rather, those costs would remain a
component of management and general activities because benefits
administration is a supporting activity for the entire entity.
ASU 2016-14 Not-For-Profit Reporting Standards45
Example Disclosure for Expense Allocation Disclosure
NOTE X. METHODS USED FOR ALLOCATION OF EXPENSES FROM
MANAGEMENT AND GENERAL ACTIVITIES (ASU 958-720-55-176)
The financial statements report certain categories of expenses that are
attributable to one or more program or supporting functions of the Organization.
Those expenses include depreciation and amortization, the president’s office,
communications department, and information technology department.
Depreciation is allocated based on square footage, the president’s office is
allocated based on estimates of time and effort, certain costs of the
communications department are allocated based on estimates of time and effort,
and the information technology department is allocated based on estimates of
time and costs of specific technology utilized.
ASU 2016-14 Not-For-Profit Reporting Standards46
Implementation Issues – Reporting of Expenses
➢Nonprofits should review their allocation methodologies to determine if there are any
changes that are necessary to comply with the ASU.
➢Once the allocation methodologies are implemented, nonprofits should decide how to
present this analysis in their financial statements and develop the format.
➢Nonprofits may need to evaluate the different programs and supporting activities to
determine if the methodology and presentation is complete and accurate.
➢Nonprofits will also have to develop wording for its allocation methodology disclosure.
➢In developing the disclosures, a nonprofit should assess which activities constitute
direct conduct or direct supervision of a program or supporting function, and,
therefore require an allocation of costs.
47 ASU 2016-14 Not-For-Profit Reporting Standards
Investment Return
ASU 2016-14 Not-For-Profit Reporting Standards48
Reporting of Investment Return
Net presentation of investment expenses against
investment return on the face of the statement of activities
• Netting limited to external and direct internal expenses
Disclosure of investment expenses no longer required
No longer require disclosure of investment income components
ASU 2016-14 Not-For-Profit Reporting Standards49
Investment Return
Direct internal investment expenses involve the direct conduct or direct
supervision of the strategic and tactical activities involved in generating
investment return including:
• Salaries, benefits, travel, and other costs associated with the officer and
staff responsible for the development and execution of investment
strategy.
• Allocable costs associated with internal investment management and
supervising, selecting, and monitoring of external investment management
firms.
Direct internal investment expenses do not include items that are not
associated with generating investment return. For example, the costs
associated with unitization and other such aspects of endowment
management would not be allocated.
ASU 2016-14 Not-For-Profit Reporting Standards50
Implementation Issues – Reporting of Investment
Return
➢Only the net amount of the investment return related to total return investing is
required to be presented in the statement of activities.
➢Programmatic investing, or any financial activity that directly carries out a
nonprofit’s mission or purpose, such as a loan made to lower-income individuals
to promote home ownership is not included in this net presentation.
➢To comply with this presentation, organizations need to fully understand the
definitions of these terms and then consider how to appropriately and accurately
capture this information.
➢Accounting for investment expenses and the related allocation of costs is a
process that organizations will have to develop to properly present these
investment costs under the provisions of the ASU. The complexity will depend on
the type of organization and the amount and nature of their investments.
52 ASU 2016-14 Not-For-Profit Reporting Standards
Cash Flow Statement
ASU 2016-14 Not-For-Profit Reporting Standards53
Cash Flow Statement
Continue to allow free choice between the Direct Method and the Indirect
Method
• However the Indirect Reconciliation will no longer be required if the NFP
chooses to use the Direct Method
ASU 2016-14 Not-For-Profit Reporting Standards54
Implementation Issues – Cash Flow Statement
Discussion should be held among management and those charged with
governance on current method of cash flow and determination of whether any
changes will be made in terms of direct versus indirect methods.
Discussion should include the pros and cons of both methods.
If determination is made to switch to alternative cash flow method,
information gathering should take place to ensure the information is accessible
for the desired reporting structure.
55 ASU 2016-14 Not-For-Profit Reporting Standards
Implementation Reminders
ASU 2016-14 Not-For-Profit Reporting Standards56
Early Adoption and Transition
Presentation of Financial Statements of NFPs, ASU 2016-14
Early Adoption: Permitted, but must apply the regular transition provisions
Transition:
• For year of adoption: apply all provisions.
• For comparative years presented: apply all provisions, except can choose
not to present for the prior year(s) presented:
‐ Analysis of expenses by nature and function, and/or
‐ Disclosures around liquidity and availability of resources
ASU 2016-14 Not-For-Profit Reporting Standards57
Important Notes
NFPs are already permitted to incorporate many of the changes in the ASU. The
only changes that cannot be done without formally adopting the ASU are:
(1) Presenting one class of restricted net assets (consolidating temporarily and
permanently restricted)
(2) Underwater endowment presentation
(3) Eliminate disclosures of investment return components and netted expenses
(4) Eliminate requirement to provide indirect reconciliation if using direct
method for operating cash flows
ASU 2016-14 Not-For-Profit Reporting Standards58
Implementation Issues - General
➢Each NFP needs to develop an implementation plan for ASU 2016-14.
➢Policies and procedures may have to be updated in order to comply with the
FASB update. This should be done as early as possible and not wait until the end
of the first fiscal year under implementation.
59 ASU 2016-14 Not-For-Profit Reporting Standards
How to Get Ready – Items to Consider
ASU 2016-14 Not-For-Profit Reporting Standards60
How to Get Ready – Items to Consider!
Item #1
Financial
Report
changes
Consider whether it
would be helpful to
prepare a “classified”
Statement of Financial
Position
Revise report columns to
reflect new net asset
classes
Determine whether your
organization wants to
present comparative
statements in the year of
adoption
Determine whether your
organization wants to
present direct or indirect
method of cash flow
statement
ASU 2016-14 Not-For-Profit Reporting Standards61
How to Get Ready – Items to Consider!
Item #2
Board-
designated
funds
Does the policy outline
how board-designated
funds are funded and
drawn down?
Does your organization
have a policy for the
commitment of board-
designated funds?
Does the board periodically
review disbursements from
board designated funds?
ASU 2016-14 Not-For-Profit Reporting Standards62
How to Get Ready – Items to Consider!
Item #3
Endowment
Spending
Has your organization
followed its own
endowment spending
policy?
How are appropriation
amounts determined?
What is your board’s
interpretation of its ability to
allow spending from donor-
restricted endowment funds if
amounts fall below original gift
amounts?
ASU 2016-14 Not-For-Profit Reporting Standards63
How to Get Ready – Items to Consider!
Item #4
Liquidity
Management
What level of financial
assets does your
organization strive to
maintain for daily
requirements?
What resources are
available for unanticipated
needs?
What is the policy for how
cash in excess of daily
requirements is handled?
How does your
organization manage
liquidity?
ASU 2016-14 Not-For-Profit Reporting Standards64
How to Get Ready – Items to Consider!
Item #5
Cost
Allocation
Methodologies
How is your organization‘s
allocation policy aligned
with the clarified
definition of Management
and General?
How are salaries of
supporting staff
allocated?
Understand how costs are
currently allocated among
program and support
functions
Which expenses are
based on direct costs and
which are allocated?
Develop a memo of
your allocation
process. This will be
helpful in developing
your policy footnote.
ASU 2016-14 Not-For-Profit Reporting Standards65
How to Get Ready – Items to Consider!
Item #6
New
Footnote
Disclosures
Prepare qualitative and
quantitative
information on liquidity
and cash availability
Prepare composition of
net assets with donor
restrictions disclosures
Prepare expense
analysis with disclosure
of cost allocation
methods
Prepare board-
designated assets
disclosures
Prepare underwater
endowment funds
disclosures
Prepare operating
measures disclosures
66 ASU 2016-14 Not-For-Profit Reporting Standards
Resources
ASU 2016-14 Not-For-Profit Reporting Standards67
Resources• BDO’s Institute for Nonprofit Excellence Resource Center for our FASB Financial Reporting Guidance
page for information on ASU 2016-14 that includes:
➢ podcasts and videos
➢ articles and blog posts
➢ Links to FASB Resources
https://www.bdo.com/resource-centers/institute-for-nonprofit-excellence/fasb-financial-reporting
ASU 2016-14 Not-For-Profit Reporting Standards68
Resources
• BDO’s Publication:
How to Read Nonprofit
Financial Statements:
A Practical Guide
➢https://www.bdo.com/resource-centers/
institute-for-nonprofit-excellence/book-promo
69 ASU 2016-14 Not-For-Profit Reporting Standards
Questions?