OUR THOUGHTS ON:

Not-for-Profit Financial Statements Update - Disclosure of Liquidity

Not-for-Profit

By Trevor Warren

The Not-for-Profit Advisory Committee (NAC) has been working on and presented various Financial Statement Presentation (FSP) topics to the Financial Accounting Standards Board (FASB) for their consideration. The NAC recommended the FSP Project to improve upon financial reporting for not-for-profit (NFP) entities.

On March 12, 2014 the FASB met on the NFP FSP project, and were specifically focused on presentation and disclosure of liquidity within NFP entities financial statements. The Board discussed the objective of providing liquidity information and agreed that the objective is to provide information that allows donors, creditors and other users to assess the liquidity of a NFP organization. This includes providing information that would enable financial statement users to identify and understand the effects of restrictions placed on an organization’s assets.

Enhanced Liquidity Disclosures

The Board discussed several ways that a NFP organization could improve the way it presents and discloses liquidity, which include:

  • Organizations could present a classified statement of financial position.
  • Organizations could distinguish assets limited as to use from other assets, either on the Statement of Financial Position or in the notes to the financial statements.
  • Organizations could disclose in the notes to the financial statements information about the nature, timing, amount and effects that external restrictions imposed by donors, contracts or other sources have on liquidity.
  • Organizations could also disclose information in the notes to the financial statements about an entity’s liquidity, which include information such as (a) assets that can be liquidated in the near-term to meet current demands, (b) policies on the use of liquidity reserves, (c) past liquidity issues and whether they remain risks and (d) existing conditions and circumstances that are known and are reasonably possible to affect an entity’s cash flow trends and liquidity.

The Board is going to conduct further research and analysis on the implications of requiring various reporting, presentation and disclosure alternatives and how they would be portrayed in an NFP’s financial statements and footnotes. Further discussions will take place at future meetings. In the meantime you can keep up to date on project discussions and progress by visiting www.fasb.org.

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