ISSUE

New financial statement reporting requirements are upon us.  Is your institution prepared for the “liquidity and availability” disclosures?  You should be.

 

SITUATION

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The Controller at TBC calls us and says, “I know you guys have been talking about this for years, but we have kind of let it sneak up on us.  How do we go about putting together the numbers – and the words – to meet the requirements of the new liquidity disclosures in our financial statements?”

“Well, you are required to provide qualitative (words) and quantitative (numbers) about your institution’s liquidity and availability of resources in the notes to the financial statements.  There are several examples of presentation provided by the FASB and the AICPA.  Ultimately, for the quantitative presentation, you can begin with ‘Financial assets, at year end’ and then show amounts ‘unavailable for general expenditures.’  Or you can simply list your various financial assets and show the net amounts available to meet cash needs for general expenditures within one year.”

 

RULES

From FASB ASU 2016-14:

This Update makes several improvements to current reporting requirements that address, among others, the following problem[s]:

Deficiencies in the transparency and utility of information useful in assessing an entity’s liquidity caused by potential misunderstandings and confusion about the term unrestricted net assets and how restrictions or limits imposed by donors, grantors, laws, contracts, and governing boards affect an entity’s liquidity, classes of net assets, and financial performance.

958-210-50-1A An NFP shall disclose the following:

  1. Qualitative information in the notes to financial statements that is useful in assessing an entity’s liquidity and that communicates how an NFP manages its liquid resources available to meet cash needs for general expenditures within one year of the date of the statement of financial position
  2. Quantitative information either on the face of the statement of financial position or in the notes, and additional qualitative information in the notes as necessary, that communicates the availability of an NFP’s financial assets at the date of the statement of financial position to meet cash needs for general expenditures within one year of the date of the statement of financial position (see paragraph 958-210-45 7(c))

Availability of a financial asset may be affected by:

  1. Its nature
  2. External limits imposed by donors, laws, and contracts with others
  3. Internal limits imposed by governing board decisions

 

BOTTOM LINE

  • ASU 2016-14 requires several financial statement presentation and disclosure changes, one of which is information about “liquidity and availability.”
  • You are required to provide qualitative (in the notes to the financial statements) and quantitative information (either on the face of the statement of financial position or in the notes) that communicates your institution’s availability of financial assets at the date of the statement of financial position to meet cash needs for general expenditures within one year of the date of the statement of financial position.
  • Your institution should already have developed the “chart” and the narrative to include in your audited financial statements for years ending after 12/15/17 – generally this year.
  • If you are not ready, call your auditor – or us – now.

 

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply. 

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