READY TO ROLL WITH THE NEW NFP REPORTING STANDARD? July 19, 2017 - PDF document

7/19/2017 READY TO ROLL WITH THE NEW NFP REPORTING STANDARD? July 19, 2017 Dustin Haywood Kieth McGovern Director Director dhaywood@bkd.com kmcgovern@bkd.com 1

7/19/2017 TO RECEIVE CPE CREDIT • Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group  Complete group attendance form with • Title & date of live webinar • Your company name • Your printed name, signature & email address  All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar  Answer polls when they are provided • If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar AGENDA Background & overview Statement of of NFP Accounting Financial Position Standards Update Statement of Activities Disclosures, & Expenses i.e. , liquidity Next steps, adoption & other implications 2

7/19/2017 NFP REPORTING CHANGES – OBJECTIVES • Refresh & update, not overhaul, financial reporting model • Simplify & improve net asset classification presentation • Enhance & adjustment information in statements & notes about  Financial performance  Cash flow  Liquidity • Allow NFPs “tell their financial story” NFP REPORTING CHANGES – IMPLEMENTATION DATES • Fiscal year beginning after December 15, 2017 • Early adoption permitted, but not required • Retrospective application 3

7/19/2017 PERCEIVED WEAKNESSES IN NFP REPORTING Complexity with three net asset classes Confusion Difficulty in Donors, creditors & regarding assessing an statement of other users entity’s cash flows liquidity No clear Inconsistent operating reporting of measure expenses defined 7 // experience drive BACKGROUND Current guidance (FAS 117) issued 20 years ago FASB NFP Advisory Committee formed in 2010 Exposure draft issued April 22, 2015 Comments submitted by August 20, 2015 FASB re-deliberated Issued August 18, 2016, ASU No. 2016-14 8 // experience drive 4

7/19/2017 STATEMENT OF FINANCIAL POSITION 5

7/19/2017 CHANGE IN NET ASSET CLASSIFICATIONS Temp. Perm. Current Unrestricted Restricted Restricted GAAP Without Donor Revised With Donor Restrictions* GAAP Restrictions* + Amount, purpose & Disclosures type of board Nature & amount of donor restrictions designations** * NFPs may choose to disaggregate further ** New disclosure requirement NET ASSET DISCLOSURES • May choose to further disaggregate on SOFP  Note: New standard requires disclosures about amounts & purposes of board designations of net assets without donor restriction, either in SOFP or footnotes • Footnote requirements  NFPs will be required to disclose information about nature & amounts of different types of restrictions that impact how/when donor-restricted net assets can be used 6

7/19/2017 SOFP: EXAMPLE 2016 Assets Net Assets Cash and cash equivalents $ 500,000 Without donor restrictions Student accounts receivable, net of allowance 1,500,000 Undesignated 10,000,000 Contributions receivable 1,000,000 Designated by the Board for endowment 5,000,000 Other receivables 500,000 15,000,000 Prepaid expenses and other assets 250,000 With donor restrictions Loans receivable, net of allowance 2,500,000 Perpetual in nature 16,000,000 Investments 35,000,000 Purpose restriction 6,600,000 Assets held in trust 750,000 Time-restricted for future periods 2,500,000 Property and equipment, net of accumulated depreciation 48,000,000 Underwater endowments (100,000) 25,000,000 Total assets $ 90,000,000 Total net assets 40,000,000 Liabilities Total liabilities and net assets $90,000,000 Accounts payable $ 1,000,000 Line of credit 15,000,000 Accrued and other liabilities 2,000,000 Deferred revenue 1,500,000 Annuities and trusts payable 500,000 Refundable government loan advances 2,500,000 Long-term debt 27,500,000 Total liabilities 50,000,000 NET ASSET DISCLOSURES • Endowment footnote  “Underwater” endowment funds will now be shown as reduction in donor-restricted net assets, rather than charged against net assets without restriction (formerly, Unrestricted)  NFPs must also disclose • Board’s interpretation of UPMIFA as to its ability to spend from underwater funds • NFP’s policy, & any actions taken during the period, concerning appropriation of underwater endowment funds • Aggregate amounts of following items  Fair value of underwater endowment funds  Original endowment gifts  Amount of funds’ deficiencies 7

7/19/2017 2016 Subject to expenditure for specified purpose: NET ASSET Scholarships $ 1,000,000 Athletics, development and other purposes of the University 3,500,000 DISCLOSURES – 4,500,000 Subject to the passage of time: EXAMPLE Charitable trust agreements 500,000 Promises to give that are not restricted by donors, but which are unavailable for expenditure until due 2,000,000 2,500,000 Endowments: Subject to appropriation and expenditure when a specified event occurs: Scholarships 1,100,000 Faculty chairs 1,000,000 Underwater endowments (100,000) 2,000,000 Subject to endowment spending policy and appropriation: Scholarships 10,000,000 Faculty chairs 5,500,000 Charitable annuity and trust agreements 250,000 Lectureships 250,000 16,000,000 Total endowments 18,000,000 Total net assets with donor restrictions $ 25,000,000 2016 Without Donor With Donor ENDOWMENT Restriction Restriction Total Board-designated endowment funds $ 5,000,000 $ - $ 5,000,000 DISCLOSURES – Donor-restricted endowment funds Original donor-restricted gift amounts required to be maintained EXAMPLE in perpetuity by donor - 16,000,000 16,000,000 Accumulated investment gains - 2,000,000 2,000,000 Total endowment funds $ 5,000,000 $ 18,000,000 $ 23,000,000 2016 Without Donor With Donor Restriction Restriction Total Endowment net assets, beginning of year $ 5,500,000 $ 19,000,000 $ 24,500,000 Investment return, net 250,000 1,000,000 1,250,000 Contributions - 500,000 500,000 Appropriation of endowment assets for expenditure (1,000,000) (2,500,000) (3,500,000) Other changes: Transfers to create board-designated endowment funds 250,000 - 250,000 Endowment net assets, end of year $ 5,000,000 $ 18,000,000 $ 23,000,000 8

7/19/2017 2016 Without Donor With Donor Restriction Restriction Total UNDERWATER Change in Net Assets $ XXX,XXX $ XXX,XXX $ XXX,XXX RECLASSIFICATION – Net Assets, Beginning of Year, as EXAMPLE Previously Stated XXX,XXX XXX,XXX XXX,XXX Restatement applicable to prior year underwater endowments XXX,XXX (XXX,XXX) - Net Assets, Beginning of Year, Restated XXX,XXX XXX,XXX XXX,XXX Net Assets, End of Year $ XXX,XXX $ XXX,XXX $ XXX,XXX • Assuming adoption as of June 30, 2017  Restatement amount would be equal to underwater value as of July 1, 2015  Any change in underwater value attributed to 2016 activity would be reflected as a change in 2016 investment return amount ENDOWMENT DISCLOSURES • Example UPMIFA Disclosure  “From time to time, certain donor-restricted endowment funds may have fair values less than the amount required to be maintained by donors or by law (underwater endowments). We have interpreted UPMIFA to permit spending from underwater endowments in accordance with prudent measures required under law. At June 30, 2016, funds with original gift values of XXX,XXX, fair values of XXX,XXX, and deficiencies of XXX,XXX were reported in net assets with donor restrictions.” 9

7/19/2017 OTHER NET ASSET CONSIDERATIONS • Expiration of Capital Restrictions  Gifts of cash restricted for acquisition or construction of PP&E • In absence of explicit donor restrictions, NFPs would be required to use “placed-in-service” approach (no more implied time restrictions) 2016 Assets Cash and cash equivalents $ 581,676 SOFP – Student accounts receivable, net of allowance of $788,113 and $846,091 for 2016 and 2015 1,309,783 Contributions receivable 174,965 CURRENT Federal award reimbursements receivable 691,686 Other receivables 902,355 Prepaid expenses and other assets 717,120 Employee loans receivable 269,800 STANDARD Loans receivable, net of allowance of $114,418 and $112,617 for 2016 and 2015 2,516,282 Investments 47,393,303 Assets held in trust 636,443 Property and equipment, net of accumulated depreciation 40,404,807 Total assets $ 95,598,220 Liabilities Accounts payable $ 1,166,220 Line of credit 1,780,000 Accrued and other liabilities 1,973,788 Deposits 233,572 Deferred revenue 1,036,459 Annuities and trusts payable 903,971 Refundable government loan advances 2,675,380 Long-term debt 19,494,000 Total liabilities 29,263,390 Net Assets Unrestricted 25,470,235 Temporarily restricted 8,451,410 Permanently restricted 32,413,185 Total net assets 66,334,830 Total liabilities and net assets $ 95,598,220 10