presentation of financial statements of nfp entities (asu ... · financial statement presentation,...

Kruggel Lawton CPAs Nonprofit ASUs Seminar 7/24/2018

Financial Statement Presentation, Margene Zink 1

Margene Zink, CPA, CGMA

Partner, Kruggel Lawton Nonprofit Practice

Presentation of Financial Statements of NFP Entities (ASU 2016‐14)

Presentation through 12/31/17

Effective Date:For fiscal years beginning after 12/15/2017 or commonly:

Calendar year ending 12/31/2018Fiscal year ending 06/30/2019

*Early adoption permitted, but must apply the regular transition provisions



5 Key Provisions of ASU 2016‐14

1) Net Asset Classification2) Statement of Cash Flows3) Investment return4) Expenses5) Liquidity & Availability

oPresentation through 12/31/17• Unrestricted

• Temporarily Restricted

• Permanently Restricted

oPresentation for years beginning after 12/15/17• Net assets without donor restrictions* ‐ (Current Unrestricted)

• Net assets with donor restrictions** ‐ (Current Temporarily and Permanently Restricted net assets)

• *With supplementary disclosures to describe the amount, purpose and type of board designations

• **With supplementary disclosures to describe the nature and amount of donor restrictions

• Option to show detail on face of financial statements or in the footnotes.

Net Asset Classification: Revises presentation of net assets into 2 categories instead of 3



Example of new presentation on Statement of Financial Position

20XX 20XXASSETS

Cashandcashequivalents 1,740,000$ 920,000$Contributionsreceivable 244,000 409,000Duefromrelatedparties ‐ 90,000Prepaidexpensesandotherassets 170,000 169,000Investments 1,158,000 677,000Propertyandequipment,net 151,000 207,000

Totalassets 3,463,000$ 2,472,000$

LIABILITIESANDNETASSETS

LIABILITIESAccountspayableandaccruedexpenses 373,000$ 219,000$Duetorelatedparties 303,000 ‐Otherliabilities 143,000 147,000

Totalliabilities 819,000 366,000

NETASSETSWithoutdonorrestrictions 1,599,000 914,000Withdonorrestrictions 1,045,000 1,192,000

Totalnetassets 2,644,000 2,106,000

Totalliabilitiesandnetassets 3,463,000$ 2,472,000$

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Example of new presentation on Statement of Activities ‐ Current Year

See NFP Excel Financial Statement Examples.xls ‐ Statement of

Activities‐CY



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Example of new presentation on Statement of Activities ‐ Previous Year

See NFP Excel Financial Statement Examples.xls ‐ Statement of

Activities‐PY

oAmounts and purposes of internal designations by the board of directors, including appropriations and similar actions that result in self‐imposed limits on the use of resources.

oComposition of net assets with donor restrictions at the reporting date and how those restrictions affect the use of the related resources.

o Information pertaining to underwater endowment funds.• Presentation of amounts by which funds are underwater:

‒ Previously reflected in net assets without donor restrictions

‒ Revision – reflect in net assets with donor restrictions – will require reclassification

• Required – In addition to current requirement for amounts by which funds are underwater, also include aggregate amount of original gifts or level required by donor or law, fair value, and any governing board provision to reduce or not spend from such funds.

Required Disclosures



oNFPS required to use the placed‐in‐service approach unless there is an explicit stipulation by the donor of a time period for the use of the assets (no more implied time restrictions)

oEliminates option to release the donor‐imposed restriction over the estimated useful life of the acquired asset – reclassify any amounts for such long‐lived assets that have been placed in service as of the beginning of the period of adoption.

oRequires recognition of revenue (without donor restrictions) when the donated assets are placed in service absent other explicit donor stipulations.

Capital Restrictions

oPreserves choice between the Direct Method and the Indirect Method• No longer requires Indirect Reconciliation when reporting using the Direct Method

Statement of Cash Flows



oAllows for net presentation of investment expenses against investment return on the face of the Statement of Activities• Limited to external investment expenses and DIRECT internal expenses

‒ Direct internal expenses include those pertaining to the direct conduct or supervision of activities that generate investment return.• Examples: salaries, benefits, travel for personnel who develop and execute investment strategy and

allocable costs associated with internal investment management and/or supervising, selecting or monitoring of 3rd party investment advisor.

• Does not include tracking or posting of investment activity.

oNo longer requires disclosure of investment expenses or investment income components.

oProgrammatic investing and similar activity is not included in the net presentation.

Investment Return

oRequire expenses to be reported, either on the face of the Statement of Activities, a Statement of Functional Expenses, or in the notes, by:• Function (already required under GAAP)• Natural Classification• Analysis (disaggregate function by nature)

oCANNOT BE PRESENTED AS SUPPLEMENTAL INFORMATION

oAlso provides enhanced guidance on allocations from M&G expenses (management and general)

Expenses



o If expenses are reported in other line items on the Statement of Activities, they should be included in the functional reporting schedule by natural classification.

oDO NOT include external and direct internal investment expenses which have been netted against investment return in the functional expense analysis.

oMust also include qualitative disclosures about methods used to allocate costs between program and supporting activities. See Excel file tab “Accounting Policies”

Expenses

Expense MethodofAllocationGrants TimeandeffortSalariesandbenefits TimeandeffortEducationandawareness TimeandeffortOccupancy SquareFootageProfessionalservices FullTimeEquivalentPrinting FullTimeEquivalentInformationtechnologies FullTimeEquivalentTravel TimeandeffortDepreciation SquareFootageOther Timeandeffort

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Example Functional Expense Statement

See NFP Excel Financial Statement Examples.xls ‐ Stmnts of Functional

Expense



oOversight

oBusiness management

oGeneral recordkeeping

oBudgeting

oFinancing, including unallocated interest costs

oSoliciting funds other than contributions and membership dues

oDisseminating information to inform the public of the NFP’s stewardship of contributed funds

oMaking announcements concerning appointments

Management and General Expenses (ASC 958‐720‐45‐7)

oProducing and disseminating the annual report

oAll other management and administration except for direct conduct of program services, fundraising activities, or membership development activities.

Management and General Expenses (ASC 958‐720‐45‐7)



oWhat should you do?• Review allocation methodologies to determine any changes needed to comply with the ASU.

• Decide how to present the analysis in the financial statements and develop the format.

• Evaluate programs and supporting activities to make sure the presentation is complete and accurate.

• Draft footnote to describe the allocation methodology.

Implementation – Reporting expenses

oQualitative information in the footnotes that is useful in assessing an NFP’s liquidity and that communicates how an NFP manages its liquid resources available to meet cash needs for general expenditures within one year of the date of the Statement of Financial Position.

oQuantitative information that exhibits the availability of an NFP’s financial assets at the date of the Statement of Financial Position to meet cash needs for general expenditures within one year (on face of financial statements or in the footnotes)

oDisclosures regarding:• Unusual circumstances, such as special borrowing arrangements, significant liquidity problems, or donor requirements for cash to be held in separate accounts

• If the NFP has borrowed from restricted funds to fund operations

• Any significant limits resulting from contractual agreements, including loan covenants

Liquidity: ASU Requirements



oFormat:• Display gross amounts of financial assets, then adjustments to arrive at available for expenditure amounts, or

• Display only the net amounts available for expenditure

Example: Liquidity Disclosure

Financialassetsatyearend: 20XX 20XXCashandcashequivalents 1,740,000$ 920,000$Contributionsreceivable 244,000 409,000Investments 1,158,000 677,000

Totalfinancialassets 3,142,000 2,006,000

Lessamountsnotavailabletobeusedwithinoneyear:Netassetswithdonorrestrictions 1,045,000 1,192,000Lessnetassetswithpurposerestrictionstobemetin

lessthanayear ‐ (7,000)Quasiendowmentestablishedbytheboard 205,000 130,000

1,250,000 1,315,000Financialassetsavailabletomeetgeneralexpenditures

overthenexttwelvemonths 1,892,000$ 691,000$

Example: Liquidity Disclosure



oMust show disclosures reflecting the amount of assets in reserve not available for use.• Results could be surprising!

oDecide whether to present a classified statement of financial position

oMust establish a plan to report on availability of unrestricted liquid assets as of the Statement of Financial Position date to meet operating cash needs within 1 year of the statement date.

oEvaluate whether to establish an operating reserve as part of the strategy to manage liquidity.

Implementation – Liquidity and Availability

Any Questions?



MARGENE L. ZINK, CPA, CGMA / Partner, Nonprofit Practice.

Margene began her public accounting career with Kruggel Lawton 15 years ago. After gettinginvolved in conducting audits for nonprofit organizations very early on, Margene knew shehad found her passion. Today she is a leader in the firm's nonprofit practice, providing audit,tax, and consulting services to nonprofit clients of all sizes. Margene's clients have includednational/local public charities, community foundations, health care providers, educationalinstitutions, faith‐based organizations, and social service agencies. She has extensiveexperience with audits conducted in accordance with the Uniform Guidance, as well asstrategic planning, financial management, and governmental regulations compliance. She isalso well versed on tax compliance for exempt organizations, including IRS requirements forpreparation of Form 990.

PROFESSIONAL AFFILIATIONS

American Institute of Certified Public Accountants

Indiana CPA Society

EDUCATIONAL BACKGROUND

B.A. in Accounting, Goshen College, Goshen, IN

A.S. in Business, Kankakee Community College, Kankakee, IL

[email protected]

317 W. Franklin StreetElkhart, IN 46516

Tel: 574.264.2247 x315Fax: 574.266.0965

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