Say hello to


CPA | Principal

There’s nothing that Shelly enjoys more than vacationing with her daughter, especially when those vacations involve all things Disney.


On August 18, 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-14 “Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.” ASU 2016-14 requires a number of changes to the financial statements of NFPs.  These changes will be effective for fiscal years beginning on or after December 15, 2017.

This article is the ninth in a series discussing the changes required by ASU 2016-14. In this article, we discuss new required disclosures about how a NFP manages its liquidity and the availability of its financial assets. 

Improving Information about Liquidity

One of FASB’s goals with this ASU is to improve information presented in the financial statements and footnotes. The information addresses not-for-profit organizations’ (NFPs’) liquidity, financial performance, and cash flows.

To help accomplish that goal, the FASB has begun requiring that all NFPs provide disclosures regarding how they manage liquidity, and the availability of financial assets. These new required disclosures will likely be one of the most significant changes ASU 2016-14 causes for NFPs.

Disclosures about Liquidity

The first part of the new disclosures addresses how a NFP manages its liquidity. ASU 2016-14 states that NFPs must provide the following:

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.

By describing the disclosure as qualitative in nature, the FASB is indicating this disclosure is going to be primarily narrative in nature. Instead of focusing on numbers and balances, the disclosure centers on describing what the NFP does to manage liquidity.

Below is one example of how this disclosure might read for a NFP.

NOTE X – Information about Liquidity

The Organization has an operating reserve that had a balance of $3.01 million and $2.96 million at June 30, 20X2 and 20X1, respectively. The governing board has dedicated this reserve with the objective of setting funds aside to be drawn upon in the event of financial distress or an immediate liquidity need. Distress or a liquidity need could result from events outside the typical life cycle of converting financial assets to cash, or settling financial liabilities. The Organization’s target for this reserve is a total of $3.0 million, which management determined based on judgments about the appropriate amount of funds to have set aside in addition to working capital. The operating reserve funds are held in lower-risk cash and short-term fixed-income securities. The operating reserve balance is included in the cash and cash equivalents line on the statement of financial position.

In the event of an unanticipated liquidity need, the Organization could also draw upon $2.5 million of an available line of credit. See Note Y for further description of the line.

Disclosures about the Availability of Financial Assets

The second part of the new disclosures provides information about the availability of a NFP’s financial assets. ASU 2016-14 states the NFP must provide the following information:

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. Availability of a financial asset may be affected by:

  • Its nature
  • External limits imposed by donors, laws, and contracts with other
  • Internal limits imposed by governing board decisions.

By describing the disclosure as quantitative in nature, the FASB is indicating that this disclosure is going to be primarily about numbers and balances.

This disclosure focuses on financial assets, which are defined by U.S. GAAP as cash, contracts to receive cash (such as receivables and debt securities), and evidence of equity ownership in another entity (such as equity securities).

The disclosure requires that NFPs present information that allows readers to see how much of the NFP’s financial assets are available for spending on general expenditures in the coming year, as of the date of the statement of financial position. As noted in the above disclosure requirement text, the following items may cause a financial asset to be unavailable for general expenditure in the coming year:

  • Nature: A financial asset’s characteristics, or attributes, may prevent it from being available. For example, a receivable balance will not be converted to cash in the coming year if its receipt is scheduled for more than one year after the statement of financial position date. Therefore, it would not be available for general expenditures.
  • External limits: External parties may place limits on a financial asset. These limits prevent the asset from being available for general expenditure. For example, if a donor restricts a cash contribution to only one of a NFP’s programs, that restriction prevents the cash contribution from being generally available for other expenditures at the NFP. Another example would be a NFP’s lender placing a use restriction on a replacement reserve.
  • Internal limits: The governing board may choose to designate, and limit, a financial asset’s use to more specific purposes than the NFP’s general activities. For example, a board may establish a capital replacement fund or quasi-endowment fund. Both funds are designated for specific purposes and may not be used for general expenditures.

Below is one example of how this disclosure might read for a NFP.

Liquidity and Availability of Financial Assets - Graphic

Flexibility in Preparing the Disclosures

The FASB is providing NFPs with flexibility regarding how they prepare the disclosures to meet these new requirements. The examples we provide in this article should be viewed as illustrative examples only.

While our examples present the disclosures in two separate footnotes, this information could be combined into one footnote. In addition to the examples in this article, the FASB has provided additional examples in ASU 2016-14. The FASB provides full text of the ASU that contains these examples on their website ( in PDF format.

The ASU includes three examples that are all very different from each other. The significant difference in these examples indicates that the FASB is not mandating specific wording or formatting. As such, NFPs should prepare the disclosures in a manner that best meets the overall disclosure requirements.

We encourage NFPs to work with industry groups, similar NFPs, and their auditors in drafting these new disclosures.

What Do I Do Know?

These disclosure requirements may provide some organizations’ internal and external financial statement users with new information regarding the organization’s financial conditions. We recommend NFPs consider the following actions to prepare for the new ASU 2016-14 disclosure requirements:

  • Continue (or start!) regular discussions with your management team and governing board regarding how the organization’s liquidity is managed, and
  • Calculate the organization’s “available financial assets.” Then determine what story your NFP’s financial statements tell to those who might make conclusions about the organization’s financial condition.

Want to Learn More?

This article focuses on one of the key changes required by ASU 2016-14. In future articles, we will discuss other key changes in more detail, along with practical guidance on implementation issues.

In the meantime, please contact your Clark Nuber service team, or Andrew Prather, if you would like to discuss how these changes will affect your NFPs financial statements.

© 2017 Clark Nuber PS All Rights Reserved

Keep Reading

Articles and Publications

IRS Announces Transfer Pricing Campaign Targeted at Mid-Market Multinational Companies

On January 31, 2017, the IRS announced that its Large Business and International (LB&I) division will focus on issue-based examinations. Under this approach, the LB&I division will use and develop specialized IRS knowledge and resources to successfully run compliance campaigns targeted towards several key risk areas. Of the 13 campaigns selected for this initial rollout, the following are most pertinent to the mid-market community:
  • Related Party Transactions Campaign – While the IRS' focus on related party transactions within large multinational corporations is not new, the current campaign specifically identifies the mid-market segment as an area of interest for the IRS' Enterprise Activities practice area. Furthermore, this campaign encompasses a broad spectrum of transfer pricing issues, from compliance with Section 1.482 of the U.S. Treasury Regulations to reasonable compensation and broader tax structures.
  • Repatriation Campaign – The IRS' Cross Border Activities practice area announced its interest in examining the different repatriation structures used by U.S. multinationals. Under this campaign, LB&I will conduct examinations on identified, high-risk repatriation issues.
  • Inbound Distributor Campaign - LB&I has developed a comprehensive training strategy for the Inbound Distributor campaign that will aid IRS agents as they examine U.S. distributors of goods sourced from foreign-related parties. The IRS’ focus will be on distributors that have “incurred losses or small profits on U.S. returns, which are not commensurate with the functions performed and risks assumed.” In these cases, the IRS will be looking to demonstrate that the U.S. distributor should be earning higher returns in an arms-length transaction.
These initial campaigns signal the IRS's increased focus on the mid-market community. When combined with the quickly changing global BEPS landscape, 2017 presents a good opportunity for our mid-market clients to proactively examine their transfer pricing and related tax structures to prepare for the expected increased scrutiny from the IRS and foreign tax authorities. Additional details regarding these campaigns and others can be found here. For further assistance, please do not hesitate to reach out to our mid-market transfer pricing specialists: © 2017 Clark Nuber PS All Rights Reserved

Private investors: Will the delayed fiduciary rule affect you?

On February 3, 2017, President Donald Trump signed a directive to delay implementation of the Department of Labor (DOL) fiduciary rule. Originally set to be effective this coming April, the postponement will allow the Trump administration additional time to review the potential changes. In development for several years, the fiduciary rule was one of the former administration’s triumphs. Former President Barack Obama heralded the rule as necessary for protecting investors and retirees from investing in products that have unacceptably high fees and hurt overall savings. As outlined by the Obama administration, the fiduciary rule was scheduled to impose a higher standard of independence between investment brokers and their clients. The presidential directive Trump signed on February 3, however, orders the DOL to review their prior analysis and determine if the proposed rule would affect investors unfavorably. Whether you are for or against this new rule, it has already begun making an impact. For example, some financial institutions were in the process of adopting the new fiduciary rule in advance of the April implementation date. With the official regulation on hold, many may continue to adopt the new standards they were already introducing to their investors. However, Trump’s directive delay may also motivate financial institutions to forgo implementing the adjustments outlined in the final rule. What does this mean for you? Legally, it means no change in the immediate future. However, as an investor, you should ask informed questions of your financial advisors to ensure you are working with someone who is acting in your best interest. To be clear, many investment advisors already have a fiduciary duty toward their clients, meaning they are legally required to act in the best interest of their client. The stay on the fiduciary rule won’t change that requirement; if your advisor is already held to that standard, they will continue to act as a fiduciary. Additionally, it is always a good idea to understand where your money is going. What fees are being charged on your investments? How is the advisor paid? Advisors may recommend many different investments.  Some operate under a fixed fee while others generate various commissions from investments you make. Asking questions and staying informed is the best way to get ahead financially. Your accountant is a good resource for an objective opinion.  If you have any questions about the fiduciary rule, contact your Clark Nuber advisor or Megan Kuchan. UPDATE - 2/14/2017: It was originally reported that President Donald Trump’s February 3rd executive directive ordered the delay in the implementation of the fiduciary rule. However, once the final presidential memorandum was published, it was determined he officially requested that the Department of Labor (DOL) reexamine the fiduciary rule and analyze whether it would, “adversely affect the ability of Americans to gain access to retirement information and financial advice.” Subsequently, the DOL requested approval for a 180-day delay in the implementation of the fiduciary rule to complete this request. Though the result is the same, the delay of the April 10 original effective date is being sought by the DOL, rather than directly from the presidential administration. © 2017 Clark Nuber PS All Rights Reserved

President Trump Regulatory Freeze Creates Uncertainty

This practice is not unusual for an incoming president, especially one from a different political party than the departing president. In fact, former President Barack Obama issued a similar order shortly after his inauguration in 2009. However, Trump’s memorandum should have a much broader impact - potentially applying to sub-regulatory guidance, including IRS Notices and Revenue Procedures. So what impact will this memorandum really have? That depends on where the federal rules are in the rule making process. The federal rule making process involves several distinct steps prior to a rule’s enactment. First, the federal agency that has jurisdiction over that particular area of federal law needs to write and propose the law. Second, the rule must be published in the Federal Register for stakeholders to review and make comments. The comment period usually lasts either 30 or 60 days, but agencies may extend or re-open comment periods. For more complex rule making, federal agencies frequently provide a 180-day comment period. Federal agencies may incorporate changes into proposed rules based on comments from stakeholders. In some cases, the agencies may publish the modified proposed rule for additional comments. Third, once the agency has finalized a proposed rule, they will publish a final version in the Federal Register along with a summary of the issues the rule addresses and the rule’s effective date. Trump’s memorandum would then indefinitely suspend rules that federal agencies are still drawing up. Likewise, proposed rules that have been published in the Federal Register but are still in the public comment stage, or have otherwise not been finalized and/or put into effect, are indefinitely suspended as well. Further, final rules that have been published in the Federal Register, but are not yet in effect, will be suspended for 60 additional days under President Trump’s Memorandum. How do these changes affect tax rule making? As there were many tax-related rules and regulations in the pipeline as of January 20, 2017, many of the following proposed rules will be suspended for at least several months:
  • New rules clarifying the centralized, entity-level audit regime for partnerships and LLCs will be indefinitely suspended and subject to review and revision by the Trump executive branch. These new implementation rules are particularly critical as the new audit regime goes into effect in 2018 by statute.
  • The proposed rules impacting discounting of pass-through entity interests on intra-family transfers, the Section 2704 Proposed Regulations, will be indefinitely suspended and subject to review, modification or withdrawal.
However, new final regulations on master limited partnerships (MLPs), which qualify income and dividend equivalent payments, were published in final form prior to Trump’s presidential memorandum. These regulations will go into effect as published. If the Trump administration wants to modify or rescind these regulations, they will need to work with Congress via the Congressional Review process, or work with Treasury to issue new regulations. In addition to his campaign promise to streamline federal government regulation, the president went one step further. On Monday, January 30, 2017, Trump signed an executive order that would require federal agencies to eliminate two existing rules, or regulations, for every new regulation created. So not only is the federal government now forced to delay rule issuance, it must revoke existing rules for each new rule it is attempting to issue. There is definitely a new sheriff in town. Only time will reveal the long-term impact of the rules freeze and revocation process. We will monitor the situation and keep you updated. © 2017 Clark Nuber PS All Rights Reserved

Featured Resources