The Financial Accounting Standards Board (FASB) is striving for increased transparency so that readers of NFP financial statements will be able to tell how an organization is managing its financial resources and whether they will be able to fund its operational activities over the next 12 months.  NFPs will now be required to provide both qualitative and quantitative information about liquidity and availability of resources. 

• Qualitative information – communicates how the NFP manages its liquid resources so they can meet their cash needs within one year of the balance sheet date.  An organization might have to first determine how it is that they are managing their operational cash needs and then communicate in verbiage the components of that process in a footnote.  There are many ways to present this information.  The AICPA’s Not-for-Profit Section gives the following example of such a disclosure:

“NFP A has $375,000 of financial assets available within one year of the balance sheet date consisting of cash of $75,000. Contributions receivable of $20,000 and short-term investments of $300,000.  None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditure within one year of the balance sheet date.  The contributions receivable are subject to time restrictions, but will be collected within one year.  NFP A has a goal to maintain financial assets, which consist of cash and short-term investments, on hand to meet 60 days of normal operating expenses, which are, on average, approximately $275,000.  As part of its liquidity management, NFP A invests cash in excess of daily requirements in various short-term investments including certificates of deposit and short term treasury instruments.  As more fully described in Note X, NFP A also has committed lines of credit in the amount of $20,000, which it could draw upon in the event of an unanticipated liquidity need.”

• Quantitative information – this communicates, perhaps in table format, the availability of a NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year.  This information can be presented either on the face of the balance sheet or in the footnotes.  Again, the AICPA’s Not-for-Profit Section gives the following example of such a disclosure:

Cash and cash equivalents                                                                                         $ 4,851,231

Accounts receivable                                                                                                           312,216

Operating investments                                                                                                      723,006

Promises to give                                                                                                                 985,846

Distributions from assets held under split-interest agreements                               145,000

Distributions from beneficial interests in assets held by others                                180,110

Endowment spending rate distributions and appropriations                                 1,115,664

     Financial assets available to meet cash needs general

          expenditures within one year                                                                           $ 8,313,073

Although these new reporting requirements might at first seem overwhelming, we again encourage you to begin analyzing your organization’s financial assets to better plan for this change.

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The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.