This is the third in a series of posts we have prepared regarding ASU 2016-14 and its impact on endowment related reporting. Stay tuned for the rest of the series! To view the other parts, click here: ASU 2016-14 Series
Today’s focus is liquidity and the available resources components of ASU 2016-14.
For liquidity, ASU 2016-14 expands the reporting to include both Qualitative and Quantitative information:
- Qualitative information on how an NFP manages its liquid available resources and its liquidity risk (in the footnotes); and
- Quantitative information that communicates the availability of an NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year (on the face and/or in the footnotes)
At its simplest, describing availability means listing those assets (cash, accounts receivable, contributions receivable, short-term investments, etc.) which can be accessed within 12 months. Describing flexibility means listing those assets which have no donor restrictions, have not been designated by the board for any special purpose, and do not carry any other limitation on their use for general expenditure.
Some questions to ask are:
- Does your organization have a formal policy as to how liquidity is managed?
- For the quantitative requirements noted above, does the organization want to prepare a classified statement of net position?
The disclosures must be presented in two formats:
- A narrative explanation about the entity’s policies on managing funds to meet day-to-day cash needs for general expenditures within one year of the date of the statement of financial position, and
- Numerical details about actual liquid assets available to meet general expenditures within one year of the date of the statement of financial position. The availability of a financial asset may be affected by (1) the nature of the asset, (2) any external limits imposed by donors, grantors, laws, and contracts with others and (3) any internal limits imposed by governing board decisions.
What you report will require numbers (financial statements or tables) and narratives (note disclosures or explanations). To assist clients who subscribe to the investment manager module, Fundriver has added new manager attributes to pull into the new Liquidity Report.
You will need to discuss with your auditors about the presentation type for your organization.