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Liquidity and availability disclosure

Posted on 11/22/19

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which became effective for fiscal years beginning after December 15, 2017.   The ASU provides many changes to the manner in which not-for-profit (NFP) entities report information to the users of their financial statements. One of the new disclosures required by this ASU is surrounding the liquidity and availability of resources that the NFP has to meet its cash needs for general expenditures within one year of the date of the statement of financial position. FASB included this disclosure to address a chief concern from stakeholders that there was difficulty in understanding the liquidity of some NFPs.

There are two parts to this disclosure – quantitative and qualitative information:

  • The quantitative information may be presented either on the face of the financial statements or in the notes. Examples of financial assets include cash, investments, and receivables.  In determining the amount of financial assets available, the NFP should consider amounts that are not available for general use because of contractual or donor-imposed restrictions.  Additionally, amounts that are not available within one year, such as long-term investments, should be taken into consideration.
  • The qualitative information is intended to provide the user of the financial statements with information to assess the NFP’s liquidity, and also communicate how the NFP manages it available liquid resources to meet its cash needs for general expenditure.  For example, do those charged with governance monitor operating activities closely?  Are there lines of credit available to be drawn if liquid financial assets aren’t adequate?  For amounts that are not readily available because of board designations, could these amounts be made available if needed?

Depending on the NFP, users of the financial statements can vary and include current and prospective donors, grantors and lenders.  This disclosure enhances transparency so that these users have more information available to assist in making decisions related to their specific needs.  However, it may be challenging for some NFPs since it focuses on financial management issues, and not just the financial data.

About the Author

Sam Phillips

Kerkering, Barberio & Co.
1990 Main Street, Suite 801
Sarasota, FL 34236
(941) 365-4617

Ms.Phillips serves as a Manager on the Audit Team at Kerkering Barberio. Her practice areas include Audit, Advisory and Assurance, Enterprise Risk Management, and Nonprofit Organization Services.

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