1. Financial Reporting Matters Non-Profit Organizations Should be Focused on in 2018
Matt VanDerbeck, CPA

2. Board member for local non-profits and a community bank
Expertise
20 years of non-profit and public accounting experience specializing in audit and financial statements
Full service, mid-size firm with 5 offices throughout the Hudson Valley and Albany
Variety of expertise within non-profit industry including: risk assessment, internal controls including IT, governance, and tax preparation
Board member for local non-profits and a community bank

3. Participants will be able to:
Overall Objectives
Participants will be able to:
Understand how FASB ASC No “Not-for-Profits Entities (Topic 958) Presentation of Financial Statements of Not-for-Profits Entities” impacts the presentation of their financial statements beginning with calendar year ends ending on or after December 31, 2018.
Understand how the Organization should prepare for the implementation of ASC
Access examples of the key components of ASC
Understand some of the hot topics that ASC has brought to light.
Anticipate the implementation of the new revenue recognition (ASC 606) and lease accounting (ASC 842) standards in 2019 and 2020, respectively.

4. Applicability of FASB ASC No. 2016-14
All non-profit or not-for-profit organizations (that do not provide economic benefits directly or indirectly to stakeholders) that apply FASB and prepare financial statements
IRS requirements and 501(c) 3, 4, 5 or 6 Organizations
IRS Form 990 tax return
New York State Charities Bureau
Exemptions
Audit and review thresholds

5. Today's Agenda
FASB ASC No (10:15am - 10:20am)
Deeper dive into hot topics (10:20am - 10:40am)
Eg. Financial Statements Presentation & Disclosures (10:40am - 10:55am)
What you need to do now (10:55am - 11:00am)
On the horizon (11:00am - 11:05am)
Conclusion (11:05am - 11:10am)

6. FASB ASC No

7. Why is FASB issuing this Accounting Standards Update?
FASB ASC No
Why is FASB issuing this Accounting Standards Update?
Standards for NFP financial statements could be improved to provide more useful information to donors, grantors, creditors, and other users.
What is going to be improved?
The current net asset classification requirements
The information presented in the financial statements and notes about NFP’s liquidity, financial performance, and cash flows.

8. : Key Objectives: Issued August 18, 2016
Update the Current Model : 2
Improve Net Asset Classification 3
Improve information in Financial Statements and Notes about: 4
NFP’s to better “tell their financial story”
Financial performance, Cash Flows, and Liquidity
Issued August 18, 2016

9. Fiscal years beginning after 12/15/2017
FASB ASC No
Effective date:
Fiscal years beginning after 12/15/2017
Calendar year 2018 or fiscal year
Early adoption permitted but must apply transition provisions
Transition:
For year of adoption : apply all provisions
For comparative years presented : apply all provisions, except can choose not to present:
Analysis of expenses by nature and function and/or
Disclosures around liquidity and availability of resources

10. Deeper Dive into Hot Topics

11. New liquidity and availability disclosures required
ASU Changes
Liquidity
New liquidity and availability disclosures required
Net Assets and Endowments
Net Asset classes reduced from three to two
Additional disclosures for endowments
Functional Expenses
All NFPs must : report expenses by nature and function in one place AND describe the methods used to allocate among functional categories
Investment Return
Net investment return replaces other alternatives
Statement of Cash Flows
NFPs who choose the direct method of cash flows no longer have to perform a reconciliation with the indirect method.

12. Liquidity

13. NFPs Required to Provide
Liquidity and Availability of Resources
Qualitative information on how an NFP manages its liquid available resources and its liquidity risk (in the notes)
NFPs Required to Provide
Quantitative information that communicates the availability of the NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year (on the face and/or in the notes)

14. Implementation - Liquidity
Identify financial assets and any limitations on availability for expenditure in the next 12 months.
Determine the format to present the required quantitative disclosure of liquidity information:
-Display gross amounts of financial assets, then adjustments to arrive at available for expenditure amounts OR
-Display only the net amounts available for expenditure
Availability is affected by nature of the assets, external limitations imposed by donors, contractual agreements, and board designations.

15. -Will be disclosed in the quantitative portion of the note disclosure
Implementation
Continued...
Determine whether presenting a classified statement of financial position (SOFP) could enhance or simplify the quantitative disclosure requirements (considering other effects elsewhere in the FS and notes)
Develop a format policy for managing the organization’s liquidity needs
-Will be disclosed in the quantitative portion of the note disclosure
Draft the note disclosure describing how the entity manages its liquid assets and liquidity needs. This includes:
-Conditions under which certain board-designated net assets may be undesignated
-Access to the lines of credit or other financing sources
-Any other information useful in understanding the entity’s liquidity

16. Net Assets and Endowments

17. Temporarily Restricted Permanently Restricted Unrestricted
Net Assets
Current GAAP
Temporarily Restricted
Permanently Restricted
Unrestricted
Without Donor Restrictions*
Revised GAAP
With Donor Restrictions*
Amount purpose, and type of board designations**
Disclosures
Nature and amount of donor restrictions
* NFPs may choose to disaggregate further
** New disclosure requirement

18. Net Asset Classification Requirements
Two Classes:
With donor/grantor-imposed restrictions; and time restrictions
Includes perpetual and temporary
Without donor/grantor-imposed restrictions
Includes board-designated
Example:

19. Net Asset Classification Requirements
Continued
Eliminates the options to imply a time restriction on long-lived assets, in favor of releasing the restriction when the asset is placed in service.
Disclosure requirements
Composition of net assets with donor/grantor restrictions
Emphasis on how/when resources (net assets) can be used
Specified purpose(s)
Specified time(s)
Perpetual (endowment, ex. “Funds of perpetual duration”)
Quantitative and qualitative information about board designations

20. Implementation - Net Assets
Determine whether :
You will need to adjust your tracking mechanism (G/L, spreadsheet, etc) to accommodate the new terminology and presentation.
In-service long-lived assets have implied time restrictions that will need to be released upon adoption of the ASU.
The appropriate presentation among net assets :
Without donor restrictions
With donor restrictions
Maintained in perpetuity
To present on the face of the financials vs in the notes.

21. Implementation - Board-Designations
Assemble information about the amounts and purposes of board designations of the net assets without donor restrictions.
For presentation in notes and/or on the face of the SOFP
Determine proper presentation of any board-designated endowment funds in the related endowment note.
Draft language to include in the liquidity and availability note.
Self-imposed limitations on board-designated funds
Conditions under which such funds would be made available to meet expenditure needs

22. Underwater Endowments
Now defined in Master Glossary:
Donor-restricted endowment fund for which the fair value of the fund at the reporting date is less than either the original gift amount or the amount required to be maintained by the donor or by law that extends donor restrictions.
The entire balance of the endowment fund is reported in the “with donor restrictions” class of net assets.

23. Underwater Endowments
Continued
New disclosure requirements:
–Interpretation of the NFP’s ability to spend from underwater endowment funds
–NFP’s policy, and any actions taken during the period, concerning appropriation from underwater endowment funds
–For each period presented – each of the following, in the aggregate, for all underwater endowment funds:
1) The fair value of the underwater endowment funds
2) The original endowment gift amounts (or level required to be maintained by donor stipulations or by law that extends donor restrictions)
3) The amount by which the original gift amounts exceeds the fair value (the deficiency = 2 less 1)

24. Implementation - Endowments
Change your endowment note to conform to the new two-net-asset categories presentation.
For underwater endowments, determine :
–The fair value of underwater funds
–The original gift amount or level required by donor stipulations or law that extends donor restrictions
–The aggregate amount of the deficiencies of each underwater fund
Note: Underwater portion of endowments now presented entirely in funds with donor restrictions.

25. Functional Expenses

26. Requirements for Reporting Expenses
All NFPs, including Voluntary Health and Welfare Entities, must present an analysis of expenses by function and nature in one location. Options include:
Present a separate statement of functional expenses
Present a table in the notes
Incorporate into the statement of activities
Include a description of the method(s) used to allocate costs among program and support function.
The ASU includes improved and expanded guidance about management and general expenses.

27. Investment Return

28. Net Investment Return
Presented on a net basis, with all external and direct internal investment management and custodial expenses netted against the return
No longer required to report investment income components and related expenses separately
Internal expenses include the direct conduct or direct supervision of the strategic and tactical activities involved in generating investment return
Salaries, benefits, travel, and other costs, including allocable internal costs relating to oversight of external management firms
Excludes costs not associated with generating investment return

29. Programmatic Investments Excluded
This investment guidance in ASU is not applicable to programmatic investments.
Programmatic Investing → Making loans or other investments directed at carrying out an NFP’s purpose for existence
Ex. Loans made to lower-income individuals to promote home ownership.

30. Implementation - Investment Expenses
Report external and direct internal investment expenses as a component of net investment return.
Excludes those expenses from the presentation of expenses by nature and function.
Establish procedures to accumulate any external and direct internal investment expenses to be netted against investment return.

31. Statement of Cash Flows

32. Statement of Cash Flows
NFPs may use either the direct or indirect method.
If the direct method is used, NFPs are no longer required to show the reconciliation of the change in the net assets to cash flows from operating activities.
Other proposed changes were deferred to Phase 2.

33. Operating Cash Flows - Which is Better?
Direct Method
User surveys indicate a strong preference for the direct method.
If using the indirect method, determine the potential usefulness of change to the direct method.
Indirect Method

34. Example Financial Statements Presentation and Disclosures
*Refer to Handout

35. Identify your major program activities
What you need to do now
Identify your major program activities
Major is defined by the Organization
Level at which costs will be aggregated and disclosed
General ledger tracking
Expenses by function
Asset restrictions
Time reporting
Indirect and direct time
Cost allocation plan
Documentation of methodology for indirect costs
Identify joint costs, fundraising activities, administrative activities
Prepare for new footnote disclosures

36. New Standards on the Way

37. ASU 2014-09 Revenue from Contracts with Customers (Topic 958)
Implementation date:
Annual reporting periods beginning after: December 15, 2018

38. ASU 2014-09 Revenue from Contracts with Customers (Topic 958)
Exchange transactions
Membership fees (non-reciprocal transfer vs. “benefits” received)
Sales of products and services
Sponsorships
Special events
Commissions
Naming rights
Separate contribution element - non exchange transactions
5 step approach (Identify the contract; Identify the performance obligation; determine transaction price; allocate price to performance obligations; recognize revenue as performance obligations met.
Proposed ASC “Clarifying the Scope and Guidance for Contributions Received and Made”

39. ASU Leases (Topic 842)
Effective for the fiscal years beginning after December 15, for any of the following:
-Public business entities
-NFP entity that has issued securities that are traded over-the-counter market exchange
-An employee benefit plan that files financial statements with the SEC
All other entities:
Fiscal years beginning after: December 15, 2019

40. ASU Leases (Topic 842)
Brings most leases on to the Balance Sheet
Aligns certain underlying principles of new lessor model with those in ASC 606, FASB’s new revenue recognition standard
Eliminates required use of bright-line tests to determine lease classification.
Lessee will recognize ‘right of use’ assets and related lease liabilities on the balance sheet for all arrangements with terms longer than 12 months.
Pattern of expense recognition in the income statement will depend on a lease’s classification.

41. What FASB ASC No.2016-14 Has Brought to Light
Special Events
Major or Central events vs. Peripheral or Incidental events
Gross vs. net presentation
Exchange vs. non-exchange transaction
Direct donor benefit vs. fundraising
Presentation options
Joint Costs
Combining a fundraising function with another function (i.e. program activities)
Bonafide program activity
Purpose - “call to action” other than to make a contribution
Audience - who is benefiting from the program component
Content - is it program oriented

42. Participants will be able to:
Recap/Conclusion
Participants will be able to:
Understand how FASB ASC No “Not-for-Profits Entities (Topic 958) Presentation of Financial Statements of Non-for-Profits Entities” impacts the presentation of their financial statements beginning with calendar year ends ending on or after December 31, 2018.
Understand how the Organization should prepare for the implementation of ASC
Access examples of the key components of ASC
Understand some of the hot topics that ASC has brought to light.

43. Works Cited
PowerPoint: “ASU : FASB’s Not-for-Profit Financial Reporting Standard ; Aiming to Improve Not-for-Profit Financial Reporting”
ASU :
New Standard References:
Other References:
Link to the actual standard

44. Thank you!