*** NOTE! This is the 3rd post of many with regards to ASU 2016-14. This update is extensive and covers many asspects of your Accounting. Read ALL of our posts on the various ASU sections to be fully informed. Click here to see our additional posts on this topic.
New ASU Accounting Standards procedures have arrived. They have been coming for more than two years--and they are here. These new regulations impact your financial statements for fiscal years starting after December 15, 2017.
If you are a calendar year end, you have to adopt the standard in FULL for 2018.
If you are a fiscal year end, then it will be on the fiscal year ended in year 2019. So for example June 30 year ends will be effective as of June 30, 2019. Therefore the TIME IS NOW!!!
Your organization will have to adopt the ASU changes retrospectively and show the changes for both years if you have comparative financial statements. Consider the steps you need to take without delay. Take action.
Action Steps To Take Now
Time moves quickly. Your organization needs to get busy and do the following:
Identify all financial assets and any limitations on availability for expenditures in the next 12 months.
Create a schedule detailing only those assets available in the next 12 months, or create a schedule of all financial assets with reductions indicated for those not available for expenditure in the next 12 months.
Develop a formal policy for managing the organization's liquidity needs. The footnote disclosure will note this. I recommend that the organization have a formal board liquidity policy.
Draft the note disclosure describing how the entity manages its liquid assets and liquidity needs, including conditions under which certain board-designated net assets may be undesignated, access to the lines of credit or other financial source, and any other information useful in understanding the organization’s liquidity.
Identify all financial assets.
This is easier said than done. In theory it should be gross amount of assets on your balance sheet - amounts unavailable for general expenditure = amounts available to meet the organization’s cash needs in the next 12 months.
Items to think about as you
draft the disclosure :
Cash - Available amounts is that portion without donor restrictions for purpose, or periods beyond one year, usually the cash on the balance sheet will match the cash in this table.
Cash Restricted - All is restricted so this amount should be $0, therefore don’t include restricted cash amounts.
Investments - Available amounts is that portion which is comprised of liquid securities, none of which have a purpose or time restriction and are not included in the endowment.
Accounts Receivable - Available amount is the entire balance (net of allowance), all of which is expected to be collected with in the year.
Contributions Receivable - Available amount is that portion which is expected to be collected in the current year without donor restrictions or given to the endowment.
Split-interest Agreements - Estimated distributions to be received within one year without donor restrictions.
Beneficial Agreements - Available amount is that portion of the estimated distributions to be received within one year without donor restrictions.
Endowment Assets - Available amount is that portion of the estimated spending rate formula distribution to be received within one year without donor restrictions.
Do not include the following items:
Fixed assets as these are not available within the year.
Prepaids, these have already been paid therefore cannot convert to cash to pay bills .
Inventory - Assets that will help the organization in the future, but they are not available to pay bills today, therefore not included.
Other Assets investments in subs and long term security deposits
Board-designated items should be taken out of the calculation as these have been set aside by the board.
Endowment principal that is never to be spent cannot be used to pay bills and therefore cannot be part of your calculation.
It's time to get started!
To view all of our posts on the
Accounting Standards Update
You may still find a few confusing kinks in understanding these updated reporting standards. When your organization comes across perplexing information and you have questions--we are here with the answers. Don’t fret over understanding these new changes. We have the solutions and know-how to get it done for you. If you have any questions about ASU 2016-14 or any other not-for-profit industry topics, contact our not-for-profit team leader at trent@tbfosteraccounting.com
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