FINANCIAL STATEMENTS PRESENTATION FOR NONPROFITS – IMPLEMENTATION PERSPECTIVE April 26, 2018 BDO US A, LLP, a Delaware limited liability partnership, is the U.S . member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
With you today LEE KLUMPP CARLA DEMARTINI National Assurance Partner Director 703-336-1497 212-885-7303 lklumpp@ bdo.com cdemartini@ bdo.com 2 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Presentation of Financial S tatements of NFP Entities (AS U 2016-14) 3 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Key Provisions of ASU 2016-14 Liquidity & Availability Quantitative & qualitative disclosures about liquidity and availability of resources Expenses Net Asset Classification Requirement to report expenses by Updated net asset classification function (already required), nature, scheme to two classes, changes to and an analysis showing the underwater endowment relationship between function and accounting, enhanced disclosures nature Investment Return Statement of Cash Flows Present investment return net of Continue to allow direct or indirect external and direct internal method for operating cash flows; investment expenses, no longer indirect reconciliation no longer required to disclose netted required for direct method expenses 4 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Obj ectives and Effective Date 5 Financial S tatements Presentation for Nonprofits – Implementation Perspective
NFP Financial Statements Proj ect— Key Obj ectives (recommended by FAS B’ s NFP Advisory Committee (NAC)) 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 6 6 Financial S tatements Presentation for Nonprofits – Implementation Perspective
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 • 7 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Net Assets 8 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Net Assets Temp. Perm. Current Unrestricted Restricted Restricted GAAP Without Donor Proposed GAAP With Donor Restrictions Restrictions + Amount, purpose, Nature and amount Disclosures and type of board of donor restrictions designations * * New disclosure requirement 9 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Example Effect on Statement of Financial Position 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 Note: S haded lines are required to be presented. S ource: AS U 958 10 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Example Effect on Statement of Financial Position 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 Note: S haded lines are required to be presented. S ource: AS U 958 11 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Example of Effect on Statement of Activities - Columnar Format EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR FORMAT Note: Shaded lines are required to be presented. Source: ASU 958-205-55-14 12 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Example of Effect on Statement of Activities - Columnar Format EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR FORMAT Note: Shaded lines are required to be presented. Source: ASU 958-205-55-14 13 Financial S tatements Presentation for Nonprofits – Implementation Perspective
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. 14 Financial S tatements Presentation for Nonprofits – Implementation Perspective
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. S eparate 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. S upport of particular operating activities. • Investment for a specified term. • Use in a specified future period. • Acquisition of long-lived assets. • 15 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Net Asset Disclosure Example 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 Excerpt from AS C 958-210-55-3 16 Financial S tatements Presentation for Nonprofits – Implementation Perspective
“ Underwater” Endowments Revised net asset classification • To be reflected in net assets with donor restrictions rather than in net assets without donor restrictions Enhanced disclosures • 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. 17 17 Financial S tatements Presentation for Nonprofits – Implementation Perspective
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). 18 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Example of Operating Measure Presentation S ource: AS U 958-225-55-17 19 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Example of Operating Measure Presentation S ource: AS U 958-225-55-17 20 Financial S tatements Presentation for Nonprofits – Implementation Perspective
Implementation Issues – Net Assets In order to change from three classes of net assets to only two classes, NFPs will have t o 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. S ubcategories 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. 21 Financial S tatements Presentation for Nonprofits – Implementation Perspective
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