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Posted by Michelle Spriggs on Tue, Dec 20, 2016 @ 10:20 AM


Liquidity reporting numbered among the key reasons the Financial Accounting Standard Board (FASB) amended financial statement reporting for not-for-profit organizations in August 2016. The FASB designed Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958), Presentation of Financial Statements of Not-for-Profit Entities to enhance transparency in the reporting of assets not-for-profit organizations can use to cover short-term needs. The changes made will affect reporting on liquidity and could have ramifications on not-for-profit organizations and the users of their financial statements.


Current U.S. generally accepted accounting principles (U.S. GAAP) requires not-for-profits to present their assets based on the presence of donor-imposed restrictions. Assets can be permanently restricted, temporarily restricted or unrestricted.

The unrestricted net asset designation comes with some confusion, because although assets do not specifically have donor restrictions, many are committed to other projects. The current U.S. GAAP definition of unrestricted net assets does not adequately cover limits imposed by donors, grantors, laws, contracts or governing boards that would affect the not-for-profit organization’s ability to use the asset to cover any immediate needs for capital.

Finding the Solution in Disclosures

Unrestricted net assets will continue to be classified as such, but the ASU enhances disclosures surrounding unrestricted net assets. The disclosures are designed to clarify some of the issues noted in current U.S. GAAP.

When the accounting standard begins its rollout in the 2018 calendar year, not-for-profit organizations will be required to disclose information about their governing board restrictions, including amounts and purpose for the appropriation. Other organization-imposed limits will also be disclosed. Additionally, not-for-profit organizations will provide qualitative information about how they manage their liquid resources to meet cash needs for general expenditures within a year of the statement of financial position, or balance sheet date.

Quantitative information that supports the qualitative statement will also need to be disclosed, either in the balance sheet or in the notes, to indicate the financial assets that will be used to meet the cash needs as of the balance sheet date. Assets should be able to cover cash needs within one year of the balance sheet date. Not-for-profit organizations will also need to disclose how the financial assets to be used for cash needs would be affected by the nature of the asset, external limits placed by donors, grantors, laws and contracts with others as well as any internal limits placed on the asset by the governing board.

Taken together, the liquidity disclosures are designed to illustrate an organization’s financial flexibility as well as the internal limits placed on how the organization uses its assets. They should provide users of financial statements an overview of the methods used to meet the demands for short-term cash and the ability of organization to put resources toward its crucial services.

Impact on Reporting

Not-for-profit organizations should carefully review their policies for covering short term cash needs prior to the implementation date of the new standard. Not-for-profit organizations must adopt the standard for fiscal years ending December 31, 2018 and later.

The new requirement may be shedding more light on internal spending policies, and not-for-profit organizations should ensure that the policies allow the organization to cover expenses as needed. It is recommended that governing boards be involved in some of the discussions in case board-designated fund amounts need to be adjusted in order for organizations to demonstrate they can meet their short-term needs for cash.

For More Information

For assistance in understanding the impact of the liquidity standards as well as the other changes brought by ASU 2016-14, please contact us.

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Michelle Sylvia SpriggsMichelle Spriggs is a Shareholder in the Not-For-Profit & Education Practice. She can be reached at 774.206.8336 or






Copyright © 2016 CBIZ Tofias & MHM (Mayer Hoffman McCann P.C.). All rights reserved. CBIZ Tofias & MHM are separate and independent legal entities that work together to serve clients. CBIZ Tofias is a leading provider of tax and consulting services. MHM is an independent CPA firm providing audit and other attest services. This article is protected by U.S. and international copyright laws and treaties. Use of the material contained herein without the express written consent of the firms is prohibited by law. Material contained in this alert is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their business.

Tags: not-for-profit, FASB, Michelle Spriggs, NFP, liquidity, Not-for-profit financial statement

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