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Unveiling Nonprofit Liquidity

By: Ryan Adams, CPA, Manager

Before nonprofit organizations were required to implement Accounting Standards Update No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, uncovering the amount of assets that were both liquid and available from an organization’s financial statements was often an insurmountable task. While it was true that one could ascertain the amount of liquid financial assets convertible into cash within the next twelve months from a classified statement of financial position, the greater difficulty was in assessing the availability of those financial assets for general expenditure due to the bundling of net assets which included those with restrictions.

In response, the Financial Accounting Standards Board began requiring organizations to disclose the following, at a minimum:

  • Quantitative information, either on the face of the statement of financial position or in the notes to the financial statements, about the availability of the organization’s financial assets at the date of the statement of financial position to meet cash needs for general expenditures within one year of that date.
  • Qualitative information necessary to supplement the quantitative information above (e.g., borrowing arrangements, known liquidity problems, etc.) and information about how the organization manages its liquid resources available to meet cash needs for general expenditure within one year of the date of the statement of financial position.

One method to address these requirements is to present a table within a footnote along with a paragraph containing any required qualitative information. However, this can bury information that may be useful to your organization.

Consider presenting this information front and center on the face of the statement of financial position.

For example:

This method and format maintains the advantage of a classified presentation displaying current assets, which is a critical aspect to liquidity. Separate columns are added to distinguish between assets with donor restrictions from those without donor restrictions. The quantitative disclosure requirement about the availability of the organization’s financial assets to meet cash needs for general expenditures within one year is automatically satisfied with this presentation. A note disclosure including any necessary qualitative information is still required.

Nevertheless, this method shown above illuminates the liquid resources available for general expenditure, while also reflecting the resources restricted by donors for specific programs.

An organization’s financial statements should be tailored to suit its needs and the needs of the users of the financial statements. If liquidity and availability of financial assets are critically important, then let its importance stand out on the face of the financial statements and the note disclosures!

If you have any questions, please contact your local Blue & Co. advisor.

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