New Nonprofit GAAP – ready for liquidity reporting?

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

You can’t put it off any longer.  The year has come when you’ll have to implement the new nonprofit financial reporting GAAP.  While it’s true that you may not be putting together the financial statements for your audit until this time next year, you don’t want to wait to find out what’s involved.  There are a few areas where you will benefit from advance planning.  One of them is liquidity reporting.    

You will need to report your financial assets available at year-end.

The new standard requires you to disclose your cash, investments, receivables and other financial assets that are available for general expenditures during the next 12 months.  Restricted and Board-designated assets don’t count. 

The disclosure only includes assets, not liabilities. 

You will need to disclose your cash management policy.

While the standard does not require a nonprofit to adopt a cash management policy, it’s hard to say you don’t have one, even if it’s informal and unwritten.  Nonprofit leaders know exactly how they manage cash to keep the doors open.  Just talk about that and write it down.  How much cash do you keep on hand?  What do you do with extra cash?  Do you have a line of credit?    

Why?

Financial statement users want to know more about your financial staying power.  In the wake of high profile nonprofit closures, donors, grantors and others want to know your organization has the liquidity and the management policies to support continued operations.

What can we learn?

Consider how your assets available footnote will look at the end of next year.  Ask your accountant to draft your assets available footnote using this year’s numbers and share it with your Finance Committee. 

Consider actions to improve your liquidity.  If you don’t like how your liquidity looks, you have time to examine the effect of Board-designated funds and decide if you want to recommend any changes. 

Manage your assets available at year-end.  This is the report you will live with for the next year.  If you use too much of your cash to pay down payables at year end, you’re just making yourself look poor in your assets available footnote.  Maintain your normal payment schedule.

Review your draft cash management policy with your finance committee now, before your year-end.  Now, there’s still time to discuss and revise it if needed.  You don’t want your finance committee to read your liquidity policies for the first time when they review the draft audited financial statements. 

The new GAAP for nonprofit financial reporting is ASU 2016-14, and it’s required for calendar years ending December 31, 2018 and fiscal years ending June 30, 2019.

There’s a helpful session in our financial leadership seminar, Financial Leadership Training for Emerging Nonprofit Professionals called Remodeling Your Financials—how new financial reporting GAAP will affect YOU! It’s designed to help nonprofit leaders plan to implement the new financial reporting standard.

For the accountant responsible for applying the new GAAP in your organization, we’ve put together an in-depth seminar called Financial Intensive Training on the New Financial Reporting GAAP—Remodel Your Financials—an in-depth look.

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