FINANCIAL STATEMENTS PRESENTATION FOR NONPROFITS IMPLEMENTATION - - PowerPoint PPT Presentation

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FINANCIAL STATEMENTS PRESENTATION FOR NONPROFITS – IMPLEMENTATION PERSPECTIVE

April 26, 2018

Financial S tatements Presentation for Nonprofits – Implementation Perspective 2

LEE KLUMPP

National Assurance Partner 703-336-1497 lklumpp@ bdo.com

CARLA DEMARTINI

Director 212-885-7303 cdemartini@ bdo.com

With you today

3 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Presentation of Financial S tatements of NFP Entities (AS U 2016-14)

Financial S tatements Presentation for Nonprofits – Implementation Perspective 4

Key Provisions of ASU 2016-14

Net Asset Classification

Updated net asset classification scheme to two classes, changes to underwater endowment accounting, enhanced disclosures

Liquidity & Availability

Quantitative & qualitative disclosures about liquidity and availability of resources

Expenses

Requirement to report expenses by function (already required), nature, and an analysis showing the relationship between function and nature

Statement of Cash Flows

Continue to allow direct or indirect method for operating cash flows; indirect reconciliation no longer required for direct method

Investment Return

Present investment return net of external and direct internal investment expenses, no longer required to disclose netted expenses

5 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Obj ectives and Effective Date

Financial S tatements Presentation for Nonprofits – Implementation Perspective 6



Update, not overhaul, the current model



Improve net asset classification scheme



Improve information in financial statements and notes about:

• Financial performance
• Cash flows
• Liquidity



Better enable NFPs to “ tell their financial story”



Provide more useful information to donors and other users of the financial statements

NFP Financial Statements Proj ect— Key Obj ectives

(recommended by FAS B’ s NFP Advisory Committee (NAC))

6

Financial S tatements Presentation for Nonprofits – Implementation Perspective 7

Effective Date

Presentation of Financial Statements of NFPs, ASU 2016-14

 Effective Date: For fiscal years beginning after 12/ 15/ 2017

Interim financials the following year

• Calendar year ending 12/ 31/ 18
• Fiscal year ending 6/ 30/ 19

8 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Net Assets

Financial S tatements Presentation for Nonprofits – Implementation Perspective 9

Net Assets

Unrestricted Temp. Restricted Perm. Restricted

Without Donor Restrictions

With Donor Restrictions

Amount, purpose, and type of board designations *

Nature and amount

• f donor restrictions

Current GAAP Proposed GAAP Disclosures +

* New disclosure requirement

Financial S tatements Presentation for Nonprofits – Implementation Perspective 10

Example Effect on Statement of Financial Position

Note: S haded lines are required to be presented. S

• urce: AS

U 958

Not-for-Profit Entity A Statements of Financial Position June 30, 20X1 and 20X0 (in thousands) 20X1 20X0 Assets: Cash and cash equivalents $ 4,575 $ 4,960 Accounts and interest receivable 2,130 1,670 Inventories and prepaid expenses 610 1,000 Contributions receivable 3,025 2,700 Short-term investments 1,400 1,000 Assets restricted to investment in land, buildings, and equipment 5,210 4,560 Land, buildings, and equipment 61,700 63,590 Long-term investments 218,070 203,500 Total assets $ 296,720 $ 282,980 Liabilities and net assets: Accounts payable $ 2,570 $ 1,050 Refundable advance

• 650

Grants payable 875 1,300 Notes payable

• 1,140

Annuity trust obligations 1,685 1,700 Long-term debt 5,500 6,500 Total liabilities 10,630 12,340 Net assets: Without donor restrictions (Note DD) 92,600 84,570 With donor restrictions (Note B) 193,490 186,070 Total net assets 286,090 270,640 Total liabilities and net assets $ 296,720 $ 282,980

Financial S tatements Presentation for Nonprofits – Implementation Perspective 11

Example Effect on Statement of Financial Position

Note: S haded lines are required to be presented. S

• urce: AS

U 958

Net assets: Without donor restrictions (Note DD) 92,600 84,570 With donor restrictions (Note B) 193,490 186,070 Total net assets 286,090 270,640 Total liabilities and net assets $ 296,720 $ 282,980

Financial S tatements Presentation for Nonprofits – Implementation Perspective 12

Note: Shaded lines are required to be presented. Source: ASU 958-205-55-14

EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR FORMAT

Example of Effect on Statement of Activities - Columnar Format

Financial S tatements Presentation for Nonprofits – Implementation Perspective 13

Note: Shaded lines are required to be presented. Source: ASU 958-205-55-14

EXAMPLE OF EFFECT ON STATEMENT OF ACTIVITIES - COLUMNAR FORMAT

Example of Effect on Statement of Activities - Columnar Format

Financial S tatements Presentation for Nonprofits – Implementation Perspective 14

Disclosures Related to Net Assets



Amounts and purposes of governing board designations, appropriations, and similar actions that result in self-imposed limits on the use of resources without donor-imposed restrictions as of the end of the period.



Composition of net assets with donor restrictions at the end of the period and how the restrictions affect the use of resources.



Additional information related to underwater endowment funds.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 15

Disclosures Related to Net Assets



Information about the nature and amounts of different types of donor-imposed restrictions should be reported either on the face of the statements or in the

• notes. S

eparate line items that distinguish between the different types of restrictions may be used such as:

• Assets, such as land or works of art, donated with stipulations that they

be used for a specified purpose, be preserved, and not be sold.

• Assets donated with stipulations that they be invested to provide a

permanent source of income.

• S

upport of particular operating activities.

• Investment for a specified term.
• Use in a specified future period.
• Acquisition of long-lived assets.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 16

Net Asset Disclosure Example

Excerpt from AS C 958-210-55-3

With donor restrictions Perpetual in nature 200,000 $ Purpose restricted 1,840,000 Time-restricted only, for periods after 20X1 150,000 2,190,000 $ Without donor restrictions Designated by the Board for [purpose] 1,000,000 $ Undesignated 24,000,000 25,000,000 Net assets 27,190,000 $

Financial S tatements Presentation for Nonprofits – Implementation Perspective 17

“ Underwater” Endowments

17

• To be reflected in net assets with donor restrictions

rather than in net assets without donor restrictions

Revised net asset classification

• In addition to aggregate amounts by which funds

are underwater (current GAAP), also disclose aggregate of original gift amounts (or level required by donor or law) for such funds, fair value, and any governing board policy or decision to reduce or not spend from such funds.

Enhanced disclosures

Financial S tatements Presentation for Nonprofits – Implementation Perspective 18

Operating Measure: Improved Disclosures

 For those NFPs that utilize an operating measure and show governing

board designations, appropriations, and similar actions (internal transfers) in the measure:

 These NFPs must report these types of internal transfers

appropriately disaggregated and described by type (either on the face of the financial statements or in the notes).

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Example of Operating Measure Presentation

S

• urce: AS

U 958-225-55-17

Financial S tatements Presentation for Nonprofits – Implementation Perspective 20

Example of Operating Measure Presentation

S

• urce: AS

U 958-225-55-17

Financial S tatements Presentation for Nonprofits – Implementation Perspective 21

Implementation Issues – Net Assets

• In order to change from three classes of net assets to only two classes, NFPs will

have t o perform a detailed review of their organization’ s records to make sure all funds are classified correctly.

• The new standard requires reporting of underwater amounts of donor-restricted

endowment funds in net assets with donor restrictions. The standard also enhances disclosures about underwater endowments. Therefore, underwater amounts previously reported in unrestricted funds must be reclassified to net assets with donor restrictions.

• S

ubcategories of net assets classes should be established and reviewed with audit committee, if organization wishes to report subcategories.

• Organizations should ensure policies are in place to reflect new disclosure

requirements in relation to net assets.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 22

Expiration of Capital Restrictions



Gifts of cash restricted for acquisition or construction of PP&E



NFPs would be required to use the placed-in-service approach (no more implied time restrictions) unless there is a donor explicit stipulation of a time period for the use of assets



Reclassify any amounts from net asset s wit h donor rest rict ions to net asset s wit hout donor rest rict ions for such long-lived assets that have been placed in service as of the beginning of the period of adoption (thus eliminating the current option to release t he donor-imposed restriction over the estimat ed useful life of the acquired asset). Approach for reporting expirations on gifts of capital assets: Does your organization use the placed-in-service approach? If not, your

• rganization will have to adopt it, taking into account any donor explicit

stipulations

Financial S tatements Presentation for Nonprofits – Implementation Perspective 23

Implementation Issues – Capital Restrictions

• When examining the effect of the AS

U on your organization, you should look at whether you have any contributions

• f

long-lived assets that are being reclassified over time without any explicit stipulation of a time period for the use

• f the asset. If these assets have already been placed in service, the amount of

these long-lived assets should be reclassified from net assets with donor restrictions to net assets without donor restrictions upon adoption of the AS U.

• In addition, the organization will have to modify its policy with regard to the

receipt of contributions for the construction of long-lived assets or donated long- lived assets. Upon adoption of the AS U, an organization will have t o recognize revenue without donor restrictions when the donated assets are placed in service absent any explicit donor stipulations otherwise. In the past, organizations had an option to either follow the placed-in-service approach or to place an implied time restriction on the long-lived assets.

24 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Liquidity

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Liquidity and Availability of Resources

NFPs required to provide:

Qualitative information on how an NFP manages its liquid available resources and its liquidity risk (in the notes) Quantitative information that communicates the availability of an NFP’s financial assets at the statement of financial position date to meet cash needs for general expenditures within one year (on the face and/ or in the notes)

Examples from early adopters demonstrate three ways to provide the required information

Financial S tatements Presentation for Nonprofits – Implementation Perspective 26

Liquidity and Availability of Resources

Qualitative

NFPs are required to communicate how they manage their liquid resources available to meet cash needs for general expenditures within one year of the date of the statement of financial

• position. Additionally, NFPs should disclose any of the following:

a. Unusual circumstances, such as special borrowing arrangements, requirements imposed by resource providers that cash be held in separate accounts, and known significant liquidity problems.

• b. The fact that t he NFP has not maint ained appropriate

amounts of cash and cash equivalents t o comply with donor- imposed restrictions. c. Information about significant limits result ing from contractual agreements with suppliers, creditors, and others, including the existence of loan covenants.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 27

Liquidity and Availability of Resources

Quantitative NFPs are required to communicate the availability of their financial assets at the statement of financial position date to meet cash needs for general expenditures within one year (on the face and/ or in the notes). Availability of a financial asset may be affected by (1) its nature, (2) external limits imposed by donors, grantors, laws, and contracts with others, and (3) internal limits imposed by governing board decisions.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 28

Quantitative and Qualitative Liquidity and Availability of Resources Disclosure Example

S

• urce: AS

U 958-210-55-8

Financial S tatements Presentation for Nonprofits – Implementation Perspective 29

Quantitative and Qualitative Liquidity and Availability of Resources Disclosure Example

S

• urce: AS

U 958-210-55-8

Note T (Continued) NFP A ’s endowment funds consist of donor-restricted endowment s and a quasi-endowment. Income from donor-rest ricted endowment s is rest ricted for specific purposes and, therefore, is not available for general expendit ure. As described in Note Y , the quasi-endowment has a spending rate of 5 percent. $1.65 million of appropriations from t he quasi-endowment will be available within the next 12 months. As part of NFP A ’s liquidity management, it has a policy to st ruct ure it s financial asset s to be available as it s general expenditures, liabilities, and other obligations come due. In addition, NFP A invest s cash in excess of daily requirement s in short -term invest ment s. To help manage unanticipated liquidity needs, NFP A has commit t ed 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 it s quasi-endowment other t han amount s appropriated for general expendit ure as part of its annual budget approval and appropriation process, amount s from it s quasi-endowment could be made available if necessary. However, bot h t he quasi- endowment and donor-rest ricted endowment s contain investment s with lock-up provisions t hat would reduce the total investment s that could be made available (see Note X for disclosures about investments).

Financial S tatements Presentation for Nonprofits – Implementation Perspective 30

Quantitative Disclosure of Financial Asset Availability

Financial assets, at year end* 234,410 $ Less those unavailable for general expenditures within one year, due to: Contractual or donor-imposed restrictions: Restricted by donor with time or purpose restrictions (11,940) Subject to apropriation and satisfaction of donor restrictions** (174,700) Investments held in annuity trust (4,500) Board designations: Quasi-endowment fund, primarily for long-term investing** (36,600) Amounts set aside for liquidity reserve (1,300) Financial assets available to meet cash needs for general expenditures within one year 5,370 $

* Total assets, less nonfinancial assets (e.g., PP&E, inventory, prepaids) ** Excludes amounts that have been appropriated for next 12 months that do not have purpose restrictions

S

• urce: AS

U 958-205-55-21

Financial S tatements Presentation for Nonprofits – Implementation Perspective 31

Implementation Issues – Liquidity and Availability

• NFPs will now have to show disclosures that will reflect how much of their assets

are in reserve and not available for use. If these analyses were not done in the past, some results may be surprising.

• NFPs will have to decide whether they should report a classified statement of

financial position.

• If not previously formalized, NFPs will now have to have an established plan in

place to report on availability of unrestricted liquid assets as of the date of the statement of financial position to meet operating cash needs within one year of the statement date.

• NFPs may want to look at establishing an operating reserve as part of its process
• f managing liquidity. We suggest looking at the Net Operating Reserve Initiative

Proj ect.

32 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Expenses

Financial S tatements Presentation for Nonprofits – Implementation Perspective 33

Expense Reporting



Report expenses, either on the face of financial statements or in the notes, by:

• Function *
• Natural classification
• Analysis (disaggregate function by nature)
• Cannot be presented as supplemental information

* current ly required in GAAP



NFPs are now required to provide qualitative disclosures about methods used to allocate costs among program activities and supporting services



AS U 2016-14 also provides enhanced guidance on allocations from management and general (M&G) expenses

• Key concept: direct conduct or direct supervision

Financial S tatements Presentation for Nonprofits – Implementation Perspective 34

Expense Reporting



Additional Information

• If expenses are reported in other line items within the statement of activities

(e.g., salaries are included in costs of goods sold) they should be included in the functional reporting schedule by their natural classification.

• External and direct internal investment expenses that are netted against

investment return should not be included in the functional expense analysis.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 35

For example: 958-205-55-21 Note F (Page 66 of ASU)

Expenses By Both Nature and Function

Financial S tatements Presentation for Nonprofits – Implementation Perspective 36

Management and General Expenses (958-720-45-7)

Management and general activities include the following:

• a. Oversight
• b. Business management
• c. General recordkeeping and payroll
• d. Budgeting
• e. Financing
• f. S
• liciting funds other than contributions and membership dues (see examples

included in above section)

• g. Administering government, foundation, and similar customer-sponsored

contracts, including billing and collecting fees and grant and contract financial reporting

Financial S tatements Presentation for Nonprofits – Implementation Perspective 37

Management and General Expenses (958-720-45-7)

Management and general activities include the following (continued):

• h. Disseminating information to inform the public of the NFP’ s stewardship
• f contributed funds
• i. Making announcements concerning appointments

j . Producing and disseminating the annual report

• k. Employee benefits management and oversight (human resources)
• l. All other management and administration except for direct conduct of

program services (see paragraphs 958-720-55-171-55-176 for examples)

Financial S tatements Presentation for Nonprofits – Implementation Perspective 38

Management and General Expenses

“ The costs of oversight and management usually include the salaries and expenses of the governing board, the chief executive officer of the NFP, and the supporting staff. If such staff spend a portion of their time directly conducting or supervising program services or categories of other supporting services, however, their salaries and expenses shall be allocated among those functions.” (958-720-45-8)

Financial S tatements Presentation for Nonprofits – Implementation Perspective 39

Direct Conduct or Direct Supervision

“ Activities that represent direct conduct

• r

direct supervision of program

• r
• ther

supporting activities require allocation from management and general activities. Additionally, certain costs benefit more than

• ne

function and, therefore, shall be allocated. For example, information technology generally can be identified as benefiting various functions, such as management and general (for example, accounting and financial reporting and human resources), fundraising, and program delivery. Therefore, information technology costs generally would be allocated among the functions receiving direct benefit.” (958-720-45-2A)

Financial S tatements Presentation for Nonprofits – Implementation Perspective 40

Direct Conduct or Direct Supervision

Case A in ASU: Chief Executive Officer Allocation 958-720-55-172: The broad responsibilities of a chief executive officer generally include administrative and programmatic oversight. At Not- for-Profit Entity A (NFP A), the chief executive officer spends a portion

• f

time directly overseeing the research program. Additionally, a portion

• f

time is spent with current and potential donors on fundraising cultivation activities. A portion of the chief executive

• fficer’ s compensation and benefits and other expenses would be

allocated to the research program and to the fundraising function representing the portion of time spent on those activities because they reflect direct conduct or direct supervision. If the remainder of the chief executive officer’ s time is spent indirectly supervising the other areas of NFP A, including the administrative areas, those activities would not constitute direct conduct or direct supervision, and the ratable portion of compensation and benefit amounts would remain in management and general activities.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 41

Direct Conduct or Direct Supervision

Case C in ASU: Human Resources Department Allocation 958-720-55-174 The human resources department at Not-for-Profit Entity C (NFP C) generally is involved in the benefits administration for all personnel of NFP C. The human resources department’ s related costs would not be allocated to any specific program. Rather, those costs would remain a component of management and general activities because benefits administration is a supporting activity for the entire entity.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 42

Example Disclosure for Expense Allocation Disclosure

NOTE X. METHODS US ED FOR ALLOCATION OF EXPENS ES FROM MANAGEMENT AND GENERAL ACTIVITIES (AS U 958-720-55-176)

The financial statements report certain categories

• f

expenses that are attributable to one or more program or supporting functions of the Organization. Those expenses include depreciation and amortization, the president’ s office, communications department, and information technology department . Depreciation is allocated based on square footage, the president’ s office is allocated based

• n

estimat es

• f

time and effort, certain costs

• f

the communications department are allocated based on estimates of time and effort, and the information technology department is allocated based on estimat es of time and costs of specific technology utilized.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 43

Implementation Issues – Reporting of Expenses

• Nonprofits should review their allocation met hodologies to determine if there are any

changes that are necessary to comply with the AS U.

• Once the allocation methodologies are implemented, nonprofits should decide how to

present this analysis in their financial statements and develop the format.

• Nonprofits may need t o evaluate the different programs and supporting activities to

determine if the methodology and presentation is complete and accurate.

• Nonprofits will also have to develop wording for its allocation methodology disclosure.
• In developing the disclosures, a nonprofit should assess which activities constitute

direct conduct

• r

direct supervision of a program or supporting function, and, therefore require an allocation of costs.

44 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Investment Return

Financial S tatements Presentation for Nonprofits – Implementation Perspective 45

Reporting of Investment Return

 Net presentation of investment expenses against

investment return on the face of the statement of activities

• Net t ing limit ed t o ext ernal and direct int ernal expenses

 Disclosure of investment expenses no longer required  No longer require disclosure of investment income components

Financial S tatements Presentation for Nonprofits – Implementation Perspective 46

Investment Return

 Direct internal investment expenses involve the direct conduct or direct

supervision of the strategic and tactical activities involved in generating investment return including:

• S

alaries, benefits, travel, and other costs associated with the officer and staff responsible for the development and execution

• f

investment strategy.

• Allocable

costs associated with internal investment management and supervising, selecting, and monitoring of external investment management firms.

 Direct

internal investment expenses do not include items that are not associated with generating investment return. For example, the costs associated with unitization and

• ther

such aspects

• f

endowment management would not be allocated.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 47

Implementation Issues – Reporting of Investment Return

• Only the net amount of the invest ment return related to total return investing is

required to be presented in the statement of activities.

• Programmatic invest ing, or any financial activity that directly carries out a

nonprofit’ s mission or purpose, such as a loan made to lower-income individuals to promote home ownership is not included in this net presentation.

• To comply with this presentation, organizations need to fully understand the

definitions of these t erms and then consider how to appropriately and accurately capture this information.

• Accounting for investment expenses and the related allocation of costs is a

process that

• rganizations will

have to develop to properly present these investment costs under the provisions of the ASU. The complexity will depend on the type of organization and the amount and nature of their investments.

48 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Cash Flow S tatement

Financial S tatements Presentation for Nonprofits – Implementation Perspective 49

Cash Flow Statement



Continue to allow free choice between the Direct Method and the Indirect Method

• However the Indirect Reconciliation will no longer be required if the NFP

chooses to use the Direct Method

Financial S tatements Presentation for Nonprofits – Implementation Perspective 50

Implementation Issues – Cash Flow Statement



Discussion should be held among management and those charged with governance on current method of cash flow and determination of whet her any changes will be made in terms of direct versus indirect methods.



Discussion should include the pros and cons of both methods.



If determination is made to switch to alternative cash flow method, information gathering should take place to ensure the information is accessible for the desired reporting structure.

51 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Implementation Reminders

Financial S tatements Presentation for Nonprofits – Implementation Perspective 52

Early Adoption and Transition

Presentation of Financial Statements of NFPs, ASU 2016-14



Early Adoption: Permitted, but must apply the regular transition provisions



Transition:

• For year of adoption: apply all provisions.
• For comparative years presented: apply all provisions, except can choose

not to present for the prior year(s) presented:

• Analysis of expenses by nature and function, and/ or
• Disclosures around liquidity and availability of resources

Financial S tatements Presentation for Nonprofits – Implementation Perspective 53

Important Notes

 NFPs are already permitted to incorporate many of the changes in the AS

• U. The
• nly changes that cannot be done without formally adopting the AS

U are: (1) Presenting one class of restricted net assets (consolidating temporarily and permanently restricted) (2) Underwater endowment presentation (3) Eliminate disclosures of investment return components and netted expenses (4) Eliminate requirement to provide indirect reconciliation if using direct method for operating cash flows

Financial S tatements Presentation for Nonprofits – Implementation Perspective 54

Implementation Issues - General

• Each NFP needs to develop an implementation plan for AS

U 2016-14.

• Policies and procedures may have to be updated in order to comply with the

FAS B update. This should be done as early as possible and not wait until the end of the first fiscal year under implementation.

55 Financial S tatements Presentation for Nonprofits – Implementation Perspective

How to Get Ready – Items to Consider

Financial S tatements Presentation for Nonprofits – Implementation Perspective 56

How to Get Ready – Items to Consider!

Item #1

Financial Report changes

Consider whether it would be helpful to prepare a “classified” Statement of Financial Position Revise report columns to reflect new net asset classes Determine whether your

• rganization wants to

present comparative statements in the year of adoption Determine whether your

• rganization wants to

present direct or indirect method of cash flow statement

Financial S tatements Presentation for Nonprofits – Implementation Perspective 57

How to Get Ready – Items to Consider!

Item #2

Board- designated funds

Does the policy outline how board-designated funds are funded and drawn down? Does your organization have a policy for the commitment of board- designated funds? Does the board periodically review disbursements from board designated funds?

Financial S tatements Presentation for Nonprofits – Implementation Perspective 58

How to Get Ready – Items to Consider!

Item #3

Endowment Spending

Has your organization followed its own endowment spending policy? How are appropriation amounts determined? What is your board’s interpretation of its ability to allow spending from donor- restricted endowment funds if amounts fall below original gift amounts?

Financial S tatements Presentation for Nonprofits – Implementation Perspective 59

How to Get Ready – Items to Consider!

Item #4

Liquidity Management

What level of financial assets does your

• rganization strive to

maintain for daily requirements? What resources are available for unanticipated needs? What is the policy for how cash in excess of daily requirements is handled? How does your

• rganization manage

liquidity?

Financial S tatements Presentation for Nonprofits – Implementation Perspective 60

How to Get Ready – Items to Consider!

Item #5

Cost Allocation Methodologies

How is your organization‘s allocation policy aligned with the clarified definition of Management and General? How are salaries of supporting staff allocated? Understand how costs are currently allocated among program and support functions Which expenses are based on direct costs and which are allocated? Develop a memo of your allocation

• process. This will be

helpful in developing your policy footnote.

Financial S tatements Presentation for Nonprofits – Implementation Perspective 61

How to Get Ready – Items to Consider!

Item #6

New Footnote Disclosures

Prepare qualitative and quantitative information on liquidity and cash availability Prepare composition of net assets with donor restrictions disclosures Prepare expense analysis with disclosure

• f cost allocation

methods Prepare board- designated assets disclosures Prepare underwater endowment funds disclosures Prepare operating measures disclosures

62 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Resources

Financial S tatements Presentation for Nonprofits – Implementation Perspective 63

Resources

• BDO’ s Institute for Nonprofit Excellence Resource Cent er for our FAS

B Financial Reporting Guidance page for information on AS U 2016-14 that includes:

• podcasts and videos
• articles and blog posts
• Links to FAS

B Resources

https:/ / www.bdo.com/ resource-centers/ institute-for-nonprofit-excellence/ fasb- financial-reporting

Financial S tatements Presentation for Nonprofits – Implementation Perspective 64

Resources

• BDO’ s Publication:

How to Read Nonprofit Financial S tatements: A Practical Guide

• https:/ / www.bdo.com/ resource-centers/

institute-for-nonprofit-excellence/ book-promo

65 Financial S tatements Presentation for Nonprofits – Implementation Perspective

Questions?