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Nonprofit financial reporting standards are not exempt from change. The standards have been updated for organizations’ calendar year 2018 financial statements. Are you ready for the changes?

In addition to updating the format of the basic financial statements as discussed in earlier articles, there will be significant changes impacting disclosures in the notes to the financial statements.

Perhaps the most significant new disclosure required by the new standards relates to an organization’s liquidity. The FASB included this new disclosure in the ASU because it can be difficult for users of nonprofit financial statements to determine financial assets available to meet operating expenses and maturing debt obligations.

The example note disclosure below was adapted from the AICPA’s toolkit on ASU 2016-14:

Note 3 – Availability and Liquidity

The following represents Charitable Charity’s financial assets at December 31, 2018 and 2017:

December 31
2018 2017
Financial assets at year-end
Cash and cash equivalents  1,100,000  965,000
Contributions receivable  263,000  194,000
Investments  2,250,000  2,194,000
Total financial assets at year-end  3,613,000  3,353,000
Less amounts not available to be used within one year
Net assets with donor restrictions  1,250,000  1,093,000
Less net assets with donor restrictions to be met within one year  (14,000)  (7,650)
Quasi endowment established by the Board  273,000  273,000
 1,509,000  1,358,350
Financial assets available to meet general expenditures over the next twelve months  2,104,000  1,994,650

Charitable Charity’s goal is generally to maintain financial assets to meet 90 days of operating expenses (approximately $1.4 million). As part of its liquidity plan, excess cash is invested in short-term investments, including money market accounts and certificates of deposit. Charitable Charity has a $250,000 line of credit available to meet cash flow needs.

Please note that the resulting disclosure reconciles total financial assets to those available for general expenditures by backing out assets restricted by a donor or designated by the board. The disclosure clearly identifies those assets which are restricted and those assets available to meet general expenditures or maturing debt obligations.

Organizations will have flexibility in how they present liquidity information and all of the elements above may not be required for your organization. Other restrictions impacting the liquidity of financial assets could be added to the example above.  For example, assets held in deferred compensation policies, cash surrender value of life insurance policies and investments with restrictions on withdrawals.

To prepare for the new standard, consider doing the following:

  • Start a conversation with your board. Recommend reasonable cash balance targets (90 to 120 days cash on hand for example). Ask your board to create a policy specific to maintenance of cash balances. Also consider asking your board to craft formal reserve policies.
  • Create and document your organization’s liquidity plan.
  • Inventory your financial assets and identify situations which may impact liquidity
  • Talk to your bankers about short term investment vehicles for those portions of the year where your organization may have excess cash on hand.
  • Identify donor restrictions and set targets for when you reasonably expect those restrictions to be met.

If you have any questions regarding any aspect of the new standard, please reach out to your trusted advisor at Rubino & Company (301) 564-3636.  You can also contact Patrick by email