By Christina R. Ondrako, CPA

 

 

 

As mentioned in our article dated August 2018 by Linda Gabor, CPA, CFE, there is new financial statement presentation guidance issued by the Financial Accounting Standards Board (FASB).   Below is a detailed walk through of the new standard impacting GAAP basis financial statements for years ended December 31, 2018 and after.

Summary of Changes

Net Asset Classes

  • 2 classes of net assets (previously 3; Unrestricted, Temp. Restricted, Perm. Restricted)
    • Without donor restrictions, with donor restrictions
  • New disclosures about board designations on net assets
    • Net assets without donor restrictions subject to self-imposed limits by actions of the governing board; may be earmarked for future programs, investment, purchase/construction of fixed assets, or other uses.
    • Governing board/management will likely need policies and/or practices regarding board-designations on net assets
  • Changes to accounting for underwater endowments
    • Donor-restricted endowment fund for which the fair value of the fund at the reporting date is less than either the original gift amount or the amount required to be maintained by the donor or by law that extends to donor restrictions
    • New disclosure requirements
      • Interpretation of the ability to spend from underwater endowment funds
      • Policy, and any actions taken during the period, concerning appropriation from underwater endowment funds
      • For each period, a statement of financial position is presented – each of the following, in the aggregate, for all underwater endowment funds
        • The fair value of the underwater endowment funds
      • New disclosure requirements
        • Original endowment gift amount or level required to be maintained by donor stipulations or by law that extends donor restrictions
        • Amount of the deficiencies of the underwater endowment funds
      • Placed-in-service approach for release of restrictions on gifts of/for capital assets
        • Report release of restrictions when asset is placed in service
        • Can no longer release as dollars are spent, or imply a time restriction when absent explicit donor stipulations and then release ratably over useful life of asset
        • Restatements may be necessary and footnote disclosure to describe

Liquidity & Availability

  • New disclosures about managing liquidity and the availability of financial assets
    • Qualitative information on how an NFP manages its liquid available resources and liquidity risk
    • Quantitative information that communicates the availability of an NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year
      • Either on face of the statement of financial position or in the notes
      • Availability affected by its nature, external limits (donor, lender), internal limits (board)
    • Format of disclosure should be driven by the complexity of describing the availability of financial assets; text-based disclosure and/or tabular disclosure
    • If the NFP has a deficiency (negative balance) in the composition of assets to comply with donor-imposed restrictions, (i.e. NFP has not maintained appropriate amounts of cash to comply with donor-imposed restrictions) the amounts and circumstances shall be disclosed.

Expense Reporting

  • Required disclosure of analysis of expenses by function and nature in one location
    • May be presented in notes, statement of activities, or as a separate statement; presentation in a supplementary schedule is prohibited
    • Disaggregation of functional expense classifications by their natural expense classifications
    • Voluntary Health and Welfare entities no longer required to present a separate statement of functional expenses
  • Require disclosure about methods to allocate expenses on functional basis
  • More guidance on allocating expenses from management and general expenses
    • Payroll processing costs are now to be included solely under management and general, along with oversight, business management, general recordkeeping, budgeting, and financing (including unallocated interest)
    • Grant and contract financial reporting costs are also now under management and general expenses, along with administration of government, foundation and similar sponsored contracts, including building and collecting fees

Investment Return

  • Investment return required to be reported net of related external and direct internal expenses
  • No longer required to disclose components of investment return

Statement of Cash Flows

  • No longer required to present indirect reconciliation in statement of cash flows if the direct method is used for reporting operating cash flows

For guidance on this new Accounting Standards Update, contact Christina R. Ondrako, CPA at 315.424.1120, condrako@gsacpas.com, or Linda Gabor, CPA, CFE at 315.424.1120, lgabor@gsacpas.com at Grossman, St. Amour CPAs PLLC.