Not-For-Profit GAAP Update Ken Meadows Greene Finney, LLP May 30, 2019

ASU 2016-14 – Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities

Key Changes in NFP Financial Statement Standard Net Asset Classes Liquidity and Availability Expense Reporting Underwater Endowments Investment Returns – Net Reporting Statement of Cash Flows

Net Asset Classifications

Net Asset Classifications Two Classes Donor/grantor-imposed restrictions Includes perpetual (no longer use “permanent”) and temporary Without donor/grantor-imposed restrictions Includes board designated net assets Disclosure Requirements Composition of donor/grantor-imposed restrictions Emphasis of how/when net assets (resources) can be used Specific purpose Specified time Perpetual (endowment) Quantitative and qualitative information about board designations

Net Asset Classifications Board Designations Disclosure of nature and amounts of board designations of net assets Defined as: Net assets without donor restrictions subject to self-imposed limits by action of the governing board Board designated net assets may be earmarked for future programs, investment, contingencies, purchase or construction of fixed assets, or other uses Governing boards may delegate designation decisions to management, in which case such designations are to be include in board designated net assets Recommend that NFPs have policies regarding board designations of net assets

Net Asset Classifications Board Designations of Net Assets

Liquidity & Availability Disclosure in notes: Qualitative information on how a NFP manages its liquidity to meet cash needs for general expenditures within the upcoming year Disclosure in notes or balance sheet: Quantitative information that shows the availability of financial assets at year end to meet the cash needs for general expenditures within the upcoming year Availability may be affected by: Nature of assets (receivables vs. cash) External limits imposed by donors, laws, or contracts Internal limits imposed by board decisions

Liquidity and Availability Quantitative Disclosure

Liquidity and Availability Qualitative and Quantitative

Liquidity and Availability Qualitative and Quantitative

Expense Reporting Present an analysis of expenses by function and nature in one location May be presented as a separate statement, in the statement of activities, or presented in the notes Disaggregation of functional expense classifications by their natural expense classifications Disclose the method used to allocate costs among program and support functions Improved guidance about management and general expenses

Expense Reporting In the Notes or Separate Statement

Expense Reporting Statement of Activities

Expense Reporting Disclosure of Allocation Methods

Comprehensive Example Available on the AICPA Not-for-Profit Section website Not-for-Profit Section

Additional Information The AICPA’s Not-For-Profit section has additional guidance and webcasts dealing with the new standard Can be found at www.aicpa.org/nfp

ASU 2018-08 – Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made

Determining Whether Transactions are Contributions or Exchanges Exchange – Resource provider receives commensurate value in return for the resources transferred Contributions Unconditional – recognized at receipt Conditional – recognized when condition has been achieved

Revenue from Contracts with Customers(Topic 606) ASU 2014-09 and subsequent related ASU’s

Revenue Recognition Step 1 – Identify the contract(s) with a customer Step 2 – Identify the performance obligations in the contract Step 3 – Determine the transaction price Step 4 – Allocate the transaction price to the performance obligations in the contract Step 5 – Recognize revenue when (or as) the entity satisfies a performance obligation

ASU 2016-02 – Leases (Topic 842)

Lease Accounting Overview Entity should recognize assets (right to use asset) and liabilities (liability to make lease payments) for all leases with terms greater than 12 months Leases will either be finance leases (most leases other than property) or operating leases (land, buildings, or part of a building) Right-of-use asset and lease liability recognized on the Balance Sheet and measured at the present value of the lease payments

Lease Accounting Overview Finance Lease – Income Statement Right to use asset amortized over the lease term Interest expense recorded using the effective interest method Operating Lease – Income Statement Lease expense includes the unwinding of the discount on the lease liability together with the amortization of the right to use asset; total payments divided by the lease term (straight-line basis)