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GET
informed.
FASB Update
UNDERSTANDING THE NEW ACCOUNTING AND REPORTING GUIDELINES
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PRESENTERS
KATIE THORNTON, CPA, PARTNERKatie is the firm’s higher education industry technical leader and is
responsible for the industry’s technical quality control and training of our
higher education industry staff. Katie has been presenting on new FASB
standards (including ASU 2016-14) to clients, industry associations, and
other practitioners over the last year.
KRIS RAY, CPA, SENIOR MANAGERKris is the firm’s not-for-profit industry technical leader and is responsible
for the industry’s technical quality control and training of our not-for-profit
industry staff and clients. Kris routinely presents on new FASB standards
to clients, industry associations, and other practitioners and consults with
engagement teams and clients on various technical matters.
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Agenda
• NFP FINANCIAL REPORTING MODEL
• LEASES
• REVENUE RECOGNITION
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ASU 2016-14, NOT-FOR-PROFIT ENTITIES (TOPIC 958):
PRESENTATION OF FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ENTITIES
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Who?
NFP ENTITIES WHO FOLLOW FASB NFP RULES SUCH AS:
• Charities
• Foundations
• 501(c)(3)
• Private colleges/universities
• Nongovernment healthcare providers
• Cultural institutions
• Religious organizations
• Trade associations
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Why?
GOALS OF THE NEW STANDARDS:
• Provides better information to donors, creditors, and other users of the
financial statements
• Clarifies and simplifies net asset classifications
• Provides more uniformity in presenting expenditures
• Enhances the presentation of the statement of cash flows
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When?
EFFECTIVE FOR YEARS BEGINNING AFTER DECEMBER 15, 2017 (EFFECTIVELY YEARS ENDED DECEMBER 31, 2018 AND BEYOND)
• Early implementation is permitted
• Must be applied on a retrospective basis, however, NFPs can elect not to provide
certain comparative disclosures in the year of adoption only
- Analysis of expenses by both natural and functional classification
- Disclosures about liquidity and available resources
• In the initial year of applications, NFPs are required to disclose the nature of any
reclassifications or restatements resulting from the adoption and their effect, if
any, on the change in net asset classes for each year/period presented.
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Timeline
• FASB issues the exposure draft (April 2015)
• FASB opens exposure draft comment period (August 2015)
• FASB Roundtable meetings (September/October 2015)
• FASB issues the final standard for Phase 1 (August 2016)
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UnrestrictedTemp.
RestrictedPerm Restricted
With Donor Restrictions
Amount and purpose of
board designations
Without Donor Restrictions
Nature and amount of donor restrictions
Current
GAAP
ASU
2016-14
Disclosures
+
Changes to Net Assets Classification
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New Statement of Financial Position –Unclassified (in order of liquidity)
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New Statement of Financial Position –Classified (common for healthcare entities)
Assets:
Current assets
Cash and cash equivalents $ 4,575
Contribution receivables 1,825
Noncurrent assets
Contribution receivables 1,200
Long-term investments 10,000
Total assets $ 17,600
Liabilities and net assets:
Current liabilities:
Accounts payable $ 2,570
Grants payable 550
Noncurrent liabilities:
Notes payable 5,500
Net assets:
Without donor restrictions 1,275
With donor restrictions 7,705
Total liabilities and net assets $ 17,600
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New Statement of Activities – Format A
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New Statement of Activities – Format B
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Net asset disclosures in the footnotes
REQUIRED BY 958-210-45-9
NET ASSETS WITH DONOR RESTRICTIONS ARE RESTRICTED FOR THE FOLLOWING PURPOSES OR PERIODS:
• Subject to expenditure for specified purpose
• Subject to the passage of time
• Subject to NFP spending policy and appropriation
• Subject to appropriation and expenditure when a specified event occurs
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Net asset disclosures in the footnotes
REQUIRED BY 958-210-45-11 (BOARD DESIGNATED)
NFP A’s governing board has designated, from net assets without donor
restriction of $100,000, net assets for the following purposes as of June 30,
20X1:
QUASI-ENDOWMENT $100,000
LIQUIDITY RESERVE 500,000
TOTAL $600,000
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Net asset disclosures in the footnotes
USEFUL, BUT NOT REQUIRED (RELEASES FROM RESTRICTIONS)Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of the passage of time or other events specified by donors.
Purpose restrictions accomplished:
Program A expenses $XX
Program B expenses XX
Time restrictions expired:
Passage of specific time XX
Death of annuity beneficiary XX
Release of appropriated endowment amounts
without purpose restrictions XX
Release of appropriated endowment amounts
with purpose restrictions XX
Total restrictions released $XX
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Underwater endowment funds
TO BE REFLECTED IN NET ASSETS WITH DONOR RESTRICTIONS.
ADDITIONAL REQUIRED DISCLOSURES
• NFPs policies and actions taken during that period concerning
appropriation from underwater endowment funds
• Aggregate fair value of such funds
• Aggregate of the original gift amounts (or level required by donor or law) to
be maintained
• The aggregate amount by which funds are underwater (deficiencies), which
are to be classified as part of net assets with donor restrictions (d = b – c)
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The Board of Trustees of NFP A has interpreted NFP B is subject to the State Prudent
Management of Institutional Funds Act (SPMIFA) and, thus, classifies amounts in its donor-
restricted endowment funds as net assets with donor restrictions because those net assets are
time restricted until the Board of Trustees appropriates such amounts for expenditure. Most of
those net assets also are subject to purpose restrictions that must be met before reclassifying
those net assets to net assets without donor restrictions as requiring the preservation of the
original gift amount of the donor-restricted endowment funds absent explicit donor stipulations to
the contrary. The Board of Trustees of NFP B has interpreted SPMIFA as not requiring the
maintenance of purchasing power of the original gift amount contributed to an endowment fund,
unless a donor stipulates the contrary.
Endowment footnote
Changes to the “Interpretation of Relevant Law”
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As a result of this interpretation, when reviewing its donor-restricted endowment funds, NFP B considers a
fund to be underwater if the fair value of the fund is less than the sum of NFP A classifies as permanently
restricted net assets (a) the original value of initial and subsequent gift amounts gifts donated to the fund
permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) and
(b) any accumulations to the fund that are required to be maintained in perpetuity permanent endowment
made in accordance with the direction of the applicable donor gift instrument at the time the accumulation
is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in
permanently restricted net assets is classified as temporarily restricted net assets until those amounts are
appropriated for expenditure by the organization in a manner consistent with the standard of prudence
prescribed by SPMIFA. NFP B has interpreted SPMIFA to permit spending from underwater funds in
accordance with the prudent measures required under the law. Additionally, in In accordance with SPMIFA,
NFP ANFP B considers the following factors in making a determination to appropriate or accumulate donor-
restricted endowment funds:
Endowment footnote
Changes to the “Interpretation of Relevant Law” (continued)
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Underwater Endowment Funds with Deficiencies
From time to time, the fair value of assets associated with individual donor-restricted
endowment funds may fall below the level that the donor or SPMIFA requires NFP B
to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies
Deficiencies of this nature that are reported in unrestricted net assets were $200 as
of June 30, 200Y exist in 3 donor-restricted endowment funds, which together have
an original gift value of $3,500, a current fair value of $3,300, and a deficiency of
$200 as of June 30, 200Y. These deficiencies resulted from unfavorable market
fluctuations that occurred shortly after the investment of new permanently restricted
contributions for donor-restricted endowment funds and continued appropriation for
certain programs that was deemed prudent by the Board of Trustees.
Endowment footnote
Changes to the “Underwater Endowment” paragraph
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NFP B has a policy of appropriating for distribution each year 5 percent of its endowment
fund’s average fair value over the prior 12 quarters through the calendar year-end preceding
the fiscal year in which the distribution is planned. In establishing this policy, NFP B considered
the long-term expected return on its endowment. Accordingly, over the long term, NFP B
expects the current spending policy to allow its endowment to grow at an average of 3 percent
annually. This is consistent with NFP A’s objective to maintain the purchasing power of the
endowment assets held in perpetuity or for a specified term as well as to provide additional real
growth through new gifts and investment return. NFP B has a policy that permits spending from
underwater endowment funds depending on the degree to which the fund is underwater,
unless otherwise precluded by donor intent or relevant laws and regulations. The governing
board appropriated for expenditure $75 from underwater endowment funds during the year,
which represents 3 percent of the 12-quarter moving average, not the 5 percent it generally
draws from its endowment.
Endowment footnote
Changes to the “Spending Policy” paragraph
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Endowment footnote
OLD
NEW
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Endowment Footnote
NEW COLUMN NAMES
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Quantitative and Qualitative disclosures in the Notes
Availability – Is it available for use? Are there donor imposed other external restrictions?
Or even self-imposed limits?
Liquidity – Relates to the type of asset the Organization has and the maturity of that asset.
Increased Note Disclosures surrounding Liquidity and Availability
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Increased Disclosures surrounding Liquidity and Availability
• Quantitative information about the availability of a NFP’s financial
assets at the balance sheet date to meet the cash needs for general
expenditures within one year of the balance sheet date.
• Examples include disclosing:
- The total amount of financial assets
- Amounts that are not available to meet cash needs within the time horizon because of (1)
external limits and (2) internal actions of a governing board
- The total amount of financial liabilities that are due within that time horizon
• Can be accomplished through either:
- Classified balance sheet
- Segregation and disclosure of assets whose use is limited
- Additional disclosures in the footnotes
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Increased Disclosures surrounding Liquidity and Availability
• Qualitative information about how the entity manages its liquid
resources available to meet cash needs for general expenditures
within one year of the balance sheet date
• Examples of relevant qualitative information
- Minimum cash balance goals
- Use of a line of credit
- Policy for managing excess cash
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Increased Disclosures surrounding Liquidity and Availability
EXAMPLE A – LIQUIDITY/AVAILABILITY NOTE (PARAGRAPH FORMAT)
NFP A has $395,000 of financial assets available within 1 year of the balance sheet date to meet cash needs for general expenditure consisting of cash of $75,000, contributions receivable of $20,000, and short-term investments of $300,000. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditure within one year of the balance sheet date. The contributions receivable are subject to implied time restrictions but are expected to be collected within one year.
NFP A has a goal to maintain financial assets, which consist of cash and short-term investments, on hand to meet 60 days of normal operating expenses, which are, on average, approximately $275,000. NFP A has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. In addition, as part of its liquidity management, NFP A invests cash in excess of daily requirements in various short-term investments, including certificate of deposits and short-term treasury instruments. As more fully described in Note XX, NFP A also has committed lines of credit in the amount of $20,000, which it could draw upon in the event of an unanticipated liquidity need.
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Increased Disclosures surrounding Liquidity & AvailabilityEXAMPLE B – LIQUIDITY/AVAILABILITY NOTE (TABLE + PARAGRAPH FORMAT)NFP A’s financial assets available within one year of the balance sheet date for general
expenditure are as follows.
Cash and cash equivalents $4,575
Accounts and interest receivable 2,130
Contributions receivable 1,825
Short-term investments 1,400
Other investments appropriated for current use 10,804
Total financial assets $20,734
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Increased Disclosures surrounding Liquidity & AvailabilityEXAMPLE B – LIQUIDITY/AVAILABILITY NOTE (TABLE + PARAGRAPH FORMAT) (CONTINUED)
NFP A’s endowment funds consist of donor-restricted endowments and a quasi-endowment. Income
from donor-restricted endowments is restricted for specific purposes and, therefore, is not available
for general expenditure. As described in Note Y, the quasi-endowment has a spending rate of 5
percent. $1.65 million of appropriations from the quasi-endowment will be available within the next 12
months.
As part of NFP A’s liquidity management, it has a policy to structure its financial assets to be
available as its general expenditures, liabilities, and other obligations come due. In addition, NFP A
invests cash in excess of daily requirements in short-term investments. To help manage
unanticipated liquidity needs, NFP A has committed lines of credit in the amount of $20 million, which
it could draw upon. Additionally, NFP A has a quasi-endowment of $33 million. Although NFP A does
not intend to spend from its quasi-endowment other than amounts appropriated for general
expenditure as part of its annual budget approval and appropriation process, amounts from its quasi-
endowment could be made available if necessary. However, both the quasi-endowment and donor-
restricted endowments contain investments with lock-up provisions that would reduce the total
investments that could be made available (see Note X for disclosures about investments).
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Increased Disclosures surrounding Liquidity & AvailabilityEXAMPLE C – LIQUIDITY/AVAILABILITY NOTE (TABLE + PARAGRAPH FORMAT)
The following reflects Not-for-Profit Entity A’s financial assets as of the balance sheet date,
reduced by amounts not available for general use because of contractual or donor-imposed
restrictions within one year of the balance sheet date. Amounts not available include amounts set
aside for long-term investing in the quasi-endowment that could be drawn upon if the governing
board approves that action. However, amounts already appropriated from either the donor-
restricted endowment or quasi-endowment for general expenditure within one year of the balance
sheet date have not been subtracted as unavailable.
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Financial assets, at year end $XX,XXX,XXX
Less those unavailable for general expenditures within one year, due to:
Contractual and donor-imposed restriction:
Donor restricted for time or purpose (X,XXX,XXX)
Investments held in trust (X,XXX,XXX)
Contractual limited assets (held in trust) (X,XXX,XXX)
Board designated endowment funds used primarily for long term
investing
(X,XXX,XXX)
Financial assets available within one year to meet cash needs for general
expenditures within one year
$X,XXX,XXX
Increased Disclosures surrounding Liquidity & AvailabilityEXAMPLE C – LIQUIDITY/AVAILABILITY NOTE (TABLE + PARAGRAPH FORMAT)
(CONTINUED)
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Increased Disclosures surrounding Liquidity & Availability
EXAMPLE C – LIQUIDITY/AVAILABILITY NOTE (TABLE + PARAGRAPH
FORMAT) (CONTINUED)
Not-for-Profit Entity A is substantially supported by restricted contributions. Because a donor’s restriction requires
resources to be used in a particular manner or in a future period, NFP A must maintain sufficient resources to meet
those responsibilities to its donors. Thus, financial assets may not be available for general expenditure within one
year. As part of NFP A’s liquidity management, it has a policy to structure its financial assets to be available as its
general expenditures, liabilities, and other obligations come due. In addition, NFP A invests cash in excess of daily
requirements in short-term investments. Occasionally, the board designates a portion of any operating surplus to
its liquidity reserve, which was $1,300 as of June 30, 20X1. There is a fund established by the governing board
that may be drawn upon in the event of financial distress or an immediate liquidity need resulting from events
outside the typical life cycle of converting financial assets to cash or settling financial liabilities. In the event of an
unanticipated liquidity need, NFP A also could draw upon $10,000 of available lines of credit (as further discussed
in Note XX) or its quasi-endowment fund.
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Information about expenses
• Expenses to be shown by both their function (required by current GAAP)
and their nature, as well as analysis of expense by both function and nature
- Face of the Statement of Activities
- Separate statement,
- Notes to Financial Statements
• Enhanced disclosures about the methods used to allocate costs between
functions
• Management and general activities are now more clearly defined as items
not identifiable with one or more programs, fundraising or membership
development activities.
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Major classes of program services and supporting activities • Program services
• Management and general activities
- Oversight
- Business management
- General recordkeeping and payroll
- Budgeting
- Financing
- Administering government, foundation, and customer-sponsored contracts, including billing and collecting fees and grant and contract financial reporting
- Employee benefits management and oversight (human resources)
- Disseminating information to inform the public of the NFP’s stewardship of contributed funds
- Making announcements concerning appointments
- All other management and administration except for direct conduct of program services
• Fundraising activities
• Membership development
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Program Activities Supporting Activities
Total ExpensesProgram A Program B M&G Fundraising
Salareis & Benefits
Grants to Others
Equipment Rental & Maintenance
Occupany Cost
Depreciation
Information Technology
Professional Service Fees
Supplies
Travel
Printing and Publication
Interest
Other
Total
Expense by nature and function one place in the F/S (statements of activities, separate statement, or schedule in notes)
*By function is across the columns and by nature is down the left rows
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Sample disclosure (ASC 958-720-55-176)
Note X Methods Used for Allocation of Expenses from Management and
General Activities
The financial statements report certain categories of expenses that are attributed to one or more
program or supporting functions of the Organization. Those expenses include depreciation and
amortization, president’s office, the communications department, and information technology
department. Depreciation is allocated based on square footage, the president’s office is allocated
based on estimates of time and effort, certain costs of the communication department are
allocated based on estimates of time and effort, and the information technology department is
allocated based on estimates of time and costs of specific technology utilized.
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Other Changes
• Presentation of operating cash flows
- Option to present operating cash flows using either direct method or indirect method
- Removes requirement to present or disclose the indirect method reconciliation when using
the direct method of reporting cash flows
• Investment income
- Requires reporting of investment return net of external and direct internal investment
expenses
- No longer requires disclosures of netted expenses
• Long-lived assets
- Requirement to release donor restrictions that are for the acquisition or construction of long-
lived assets when the asset is placed-in-service
- Eliminates the option to release the restriction over time as the asset is depreciated
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Whether or not to require an operating measure
Definition of a operating measure
Realignment of certain line items on Statement of Cash
Flows
Issues Left for Phase 2 of the Financial Statements Project
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Things to consider as your entity prepares for adoption of ASU 2016-14• In light of other forthcoming standards, should you early adopt?
• Would the direct method of cash flow provide better information for our
board and external users?
• What is the most meaningful way to disclose limitations on board
designated net assets?
• Will improvements require any changes to your accounting policies and
procedures?
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ASU 2016-02 - LEASES (TOPIC 842)
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• Impacts all entities following FASB
• Joint effort between FASB and IASB (which ultimately failed)
• Issued February 25, 2016
• EFFECTIVE DATES
• Public – Periods beginning after December 15, 2018 (fiscal
year ends 2020)
• Private– Periods beginning after December 15, 2019 (fiscal
year 2021)
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FASB Leases (private institutions & foundations)
FASB Leases
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• Lessees to report lease obligations on the balance sheet
(few exceptions)
• 2 types of leases
• Finance
• Operating
• Short term leases
• Related party leases
FASB Leases
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• Recognize for all leases (except short-term leases; or if the lease transfers ownership which
should be reported as a financed purchase of that asset):
Lease Asset – equal to lease liability
Lease Liability – present value of payments to be made
• As payments are made – Finance Lease:
Reduce lease liability and recognize interest expense
Amortize the lease asset over useful life of the asset (depreciation expense)
• As payments are made – Operating Lease:
Reduce lease liability by payment
Straight-line amortize the lease asset over the life of the lease as lease expense
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FASB Leases – Lessee Accounting
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• No changes to accounting from lessor perspective
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FASB Leases – Lessor Accounting
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BOTH QUALITATIVE AND QUANTITATIVE
• Lessee Disclosures
• Description of lease arrangements
• Amount of lease assets recognized
• Amounts of each: finance, operating, short-term lease costs
• Schedule of future lease payments to be made (separately for finance and operating lease liabilities)
• Lessor Disclosures
• Description of lease arrangements
• Amount of revenue recognized from leases
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FASB Leases - Disclosures
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• Understand the new lease classification requirements
• Review existing lease contracts
• Consider changes to systems and internal controls
• Consider other impacts
• Communicate with key stakeholders
FASB Leases - Planning
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ASU 2014-09 – REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)
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• Fundamentally changes the way organizations analyze accounting for revenue from contracts with customers (exchange revenue)
• Does not impact contributions or investment revenue
• Significantly expands disclosures on exchange revenue
• Effective dates:
• Public – Periods beginning after December 15, 2017 (i.e., 12/31/2018, 6/30/2019)
• Nonpublic – Periods beginning after December 15, 2018 (i.e. 12/31/2019, 6/30/2020)
Revenue from Contracts with Customers
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Questions?
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Thank you for attending
KRIS RAYSenior Manager
248.223.3652
To view a complete calendar of upcoming Plante Moran webinars, visit webinars.plantemoran.com
KATIE THORNTONPartner
517.336.7506
