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Providing Tax, Audit, Accounting & Controllership, HR Solutions, Technology Solutions, Wealth Management Services, Corporate Training & Business Advisory. www.jmco.com | [email protected]
FASB Update 2016-14 Is Here –Are you prepared?James Halleran, CPA and Partner
February 8th, 2018
Providing Tax, Audit, Accounting & Controllership, HR Solutions, Technology Solutions, Wealth Management Services, Corporate Training & Business Advisory. www.jmco.com | [email protected]
In use for over two decadesCurrent Model
August 2016– FASB issues final update on changes to not-for-profit reporting
model
Final Update on ChangesConsistency to all not-for-profits, regardless of entity type and structure
Key Goal
All not-for-profit organizations will be impacted by the proposed changes
Impact
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What’s NOT changing?Proposed model does not change the manner in which revenue is recognized or expenses are reported.
Proposed ChangesSignificant changes to how activities are presented for a reporting period.Major impact to:• Statement of financial position• Statement of activities• Statement of cash flows• Functional expense • Notes to the financial statements
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6 Key Changes
• Reporting of Expenses• Net Asset Classification• Liquidity• Cash Flow Statement• Underwater Endowments• Investment Return
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Reporting of Expenses
• Natural Classifications• Functional Classifications
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Exhibit 1
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Net Asset Classification
Reduces the number of net asset classes from 3 to 2Statement of activities and financial position presented based on:
• Net assets with donor restrictions• Net assets without donor restrictions• See Exhibit 2
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Exhibit 2
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Net Asset ClassificationNet Asset and Donor Restriction Reminders
• Only a donor can make a restricted net asset• Donor intent and understanding • Board designated amounts should be disclosed
on the Statement of Financial Position or in the notes
• Still need to track separately restricted contributions to be maintained in perpetuity from those to be spent over time or for a particular purpose
• Set a rainy day policy
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Organizations must disclose both quantitative and qualitative information related to the financial assets available to meet cash needs for general expenditures within one year
Liquidity
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• Current Assets Less• Net assets subject to donor
restrictions• Board designated net assets• Net assets limited by the
nature of the asset (not realizable within one year)
Liquidity (continued)
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Exhibit 3
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Direct cash flow Preferred Method Indirect
reconciliation no longer required
Exhibit 4
Cash Flow Statement
Indirect cash flow Still allowed
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Exhibit 4
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Current ModelReduction in net assets without donor restrictions (unrestricted)
Underwater Endowments
New ModelReduction in net assets with donor restrictions.Exhibit 5:$3,500 gift value$3,300 current market value
$200 deficiency from unfavorable market fluctuations
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Exhibit 5
Underwater Endowment Funds with Deficiencies: From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or 82 SPMIFA requires NFP B to retain as a fund of perpetual duration. Deficiencies of this nature exist in three donor-restricted endowment funds that together have an original gift value of $3,500, a current fair value of $3,300, and a deficiency of $200, as of June 30, 20XX. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new contributions for donor-restricted endowment funds and continued appropriation for certain programs that were deemed prudent by the Board of Trustees.
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Investment Return
Old Model – Two Options• Net investment expenses
against investment income and present as net return in investment as a component of revenues
• Present investment expenses separate from investment income as a component of expenses
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New Model• Net presentation as one
line item in the “Revenue and Other Support” section of the statement of activities is required
• Also eliminates the requirement to disclose the composition of investment return and the amount of investment expense
Investment Return
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Questions?
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James Halleran, CPAPartnerJames Moore, CPAs
[email protected]://www.linkedin.com/in/jameshallerancpa
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