Nonprofit Financial Reporting Changes Series: Liquidity and Financial FlexibilityApril 21, 2017
In part two of our series on FASB’s changes to nonprofit accounting, learn how disclosures regarding liquidity will change under the proposed updates.
Nonprofits will need to change the way they disclose liquidity information, in light of ASU 2016-14 released by the Financial Accounting Standards Board (FASB).
What is liquidity and financial flexibility?
Liquidity and financial flexibility refers to the extent to which an organization has cash to meet immediate and short-term obligations, or assets that can quickly be converted to do this.
FASB demands increased disclosures regarding liquidity and financial flexibility
Nonprofits will be required to disclose in the financial statements:
- Provide qualitative information about available liquid resources and how these resources are managed to meet cash needs for general expenditures within one year of the statement of financial position, (balance sheet) date.
- Provide quantitative information about the availability of assets at the date of the statement of financial position to meet those cash needs for general expenditures within one year of the statement of financial position date.
Why the change?
The FASB expects to increase transparency about the nature and extent of both internal and external limits on the availability of resources with this change. The change was also made with the intent to help assess an organization’s financial flexibility.
What should organizations do to prepare?
ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018.
Application to interim financial statements is permitted but not required in the initial year of application. Early application of the amendments in this Update is permitted. Although the changes are effective for fiscal years starting after December 15th, 2017, organizations should begin to consider the types and amounts of liquid resources they will have on hand to fulfill their financial needs.
Questions? Contact any member of our Not-for-Profit Services Team.
Stay tuned for part three of our New Financial Reporting Standards series, “Nonprofit Financial Reporting Changes Series: Classification of Expenses.”