FINANCIAL REPORTING FOR THE NONPROFIT SECTOR 1 Presented by Martha Hultzman LGC+D Audit Principal FASB proposal and UGG update

FASB OVERVIEW Improve the clarity of NFP financial reporting Improve the consistency among different types of NFPs (such as business oriented – healthcare – and contribution based – social services – ) 2 Exposure draft issued 4/22/2015 Comment period ended 8/19/2015 Final Ruling expected within 6-9 months

3 Primary Users of NFP Financial Statements DonorsBanks Audit Committee Management Bond Holders Grantors Lenders Board Members Of which many are not nonprofit experts

4 THIS SECTION PROVIDES: An overview of significant proposal components Suggested action items and An overview of comments submitted to the FASB by the AICPA

NET ASSET CLASSES 5 Current Reporting Proposed Update Action Items AICPA Comment Unrestricted Temporarily Restricted Permanently Restricted “Donor Restrictions” With & Without on face of financial statement Permanent and Temporary in footnotes Only outside interests can impose restrictions Boards may designate, not restrict Talk to lenders about debt covenants Segregation of assets limited to use should be required on face of fin. Statement Disclosure nature of amount of net assets w/o restrictions

STATEMENT OF CASH FLOWS 6 Current Reporting Proposed Update Action Items AICPA Comment Indirect method focusing on changes in assets and liabilities Consistent with methods used by businesses Direct Method Focuses on nature of receipts and disbursements Significant overhaul of internal accounting systems to capture relevant information May cause stakeholder confusion Undue burden on NFPS Should be deliberated concurrently with for- profit entities

REPORTING EXPENSES 7 Current Reporting Proposed Update Action Items AICPA Comment Functional Expense statement/Disclosure Required for VHW orgs Report expenses by nature & function Reported: on face of statement, separate statement or in footnotes VHW’s no longer required to prepare full statement Required to report methods of allocating costs Set up allocation methods May need to revamp : chart of accounts or spreadsheets Create controls to monitor allocations & operational changes Required only for NFPs that derive revenue primarily from voluntary contributions and the general public

OPERATING INDICATOR 8 Current Reporting Proposed Update Action Items AICPA Comment Prescribed for healthcare – all others define based on nature ( may lead to inconsistent classification) Add 2 subtotals to statement of activities – intermediate measures #1: operating revenues, support, expenses, gains/losses w/o donor imposed restrictions & before internal transfers #2: effects of internal transfers Intermediate measures only include amounts directed at NFP’s purpose of existence Transfers = broad connotation & range from small to significant Discussions with stakeholders about nature of internal transfers & concept of availability Heightened importance of information reporting between development and finance Objectives are supported 2 measure approach will cause confusion; mission dimension will vary and cause lack of comparability Reporting based on HC rules supported Should be deliberated concurrently w/ for profit entities

DISCLOSURE OF LIQUIDITY 9 Current Reporting Proposed Update Action Items AICPA Comment Classified balance sheet required for HC NFP’s Assets limited to use required to be present as non-current Expands disclosure Includes inflows and outflows based on NFP’s cycle – no more than 90 days A/P, Accrued payroll, & A/R information should be available Other assets & liabilities may be difficult to compute Not in favor Mandate classified balance sheet for all NFPs Concerned it will add cost, & complexity w/ little value

ADDITIONAL PROPOSED UPDATES Investment expenses must be netted against investment income Operating revenues & cash flows to include gifts of or for long-lived assets Add disclosure about spending underwater endowment funds Interest expense is not directed at carrying out an org’s purpose & should not be classified as operating activity 10

11 THIS SECTION PROVIDES: An overview of the new uniform guidance Effective Dates UNIFORM GRANT GUIDANCE

UNIFORM GRANT GUIDANCE IS YOUR ORGANIZATION AT RISK OF LOSING ITS 2016 FEDERAL FUNDING? 12 Goal Streamline requirements from 8 different grant circulars Strengthen oversight Reduce risk of waste, fraud, and abuse Ensure nonprofits are reimbursed all costs when working with entities using federal funding is the first year you will need to comply Organizations that do not comply are at risk of losing their federal funding Changes? You may need to learn and adjust internal controls to comply i.e., payroll processing and procurement

UNIFORM GRANT GUIDANCE 13 Old GuidanceNew Uniform Guidance Effective Date Threshold of expenditures of federal awards $500,000$750,000Fiscal years beginning after 12/26/2014 Threshold of Type A Major Program $300,000$750,000SAME Percentage of awards to test: low risk 25%20%SAME Percentage of awards to test: other than low risk 50%40%SAME

QUESTIONS? COMMENTS? Laura and Dave on the Affordable Care Act If you have any questions or would like to discuss further, please see us after the presentation. Thank you! Martha Hultzman on FASB and UGG If you have any questions or would like to discuss further, please see me after the presentation or drop your business card in the bowl by the door. Thank you! If you’d like to sign up for our NFP mailing list – text “LGCDMAIL” to