Non-Profit Liquidity Disclosure

I have gotten a lot of questions about implementing Accounting Standards Update 2016-14 Presentation of Financial statements of Not-for-Profit Entities (ASU).  One that comes up often is related to the new liquidity disclosure requirements.  The new standard requires not-for-profits (NFPs) to provide both qualitative and quantitative information about liquidity and availability of resources.

The qualitative information should communicate how the NFP manages its available liquid resources to meet cash needs for general expenditures within one year of the statement of financial position date.  The quantitative information should communicate the availability of financial assets to meet those same needs within that same time frame.  The availability may be impacted by external limits imposed by donors, contracts with others or internal limits set by the board of directors.

Consider what are you trying to communicate to the financial statement users.  Those users may include the board of directors, potential donors or grantors, members of the organization, a bank, etc.  Do you have enough resources to fund general expenditures over the next 12 months?  Are you struggling to maintain sufficient resources?  If so, what is your action plan to make it clear to the users of the financial statements that you are managing your resources carefully?  If there are significant resources coming in the next year, consider including the timeline for when those will be received and how they will be used.  These items can be included for both the qualitative and quantitative requirements of the disclosure.

Review your current policies and procedures for board designated funds.  Do you have written policies and procedures?  If not, that is a good place to start.  If a policy already exists, then consider how it is written and if that language may be used in preparing the qualitative information necessary for the disclosure.

Once you have determined the information to be included in your disclosure you must decide on the best presentation.  While examples have been provided in the ASU, there is no one size fits all prescription for the disclosure.  Use what works best for your organization considering who will be reading the financial statements.  Also, feel free to ask MHCS for examples as we would be happy to provide those as a starting point and work with you to be sure all the required information is included.

The ASU is effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (calendar year 2018 and fiscal year 2019).  Please reach out to us if you have any questions.  We would love to help you make sure your financial statements are clear, concise and conveying the message you want your financial statement users to receive.

Kristin Clayton, CPA, Senior Manager
KClayton@MHCScpa.com