fasb’s nfp reporting project · 2016-07-18 · presentation of net assets . pros . easier, not as...

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. | ©2015 CliftonLarsonAllen LLP

FASB’s NFP Reporting Project Impact on Religious Organizations

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Disclaimers

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein.

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Housekeeping • If you are experiencing technical difficulties, please dial:

800-422-3623. • Q&A session will be held at the end of the presentation.

– Your questions can be submitted via the Questions Function at any time during the presentation.

• The PowerPoint presentation, as well as the webinar

recording, will be sent to you within the next 10 business days.

• Please complete our online survey.

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About CliftonLarsonAllen • A professional services firm with three distinct business lines

– Wealth Advisory – Outsourcing – Audit, Tax, and Consulting

• 3,600 employees • Offices coast to coast • With more than 50 years of experience in the nonprofit

sector, we have one of the largest nonprofit practices in the country

Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC.

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Session Objectives

• Discuss Impact of proposed standard on NFP financial statements

• Understand your role in shaping the final standard

• Q&A

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Speaker Introduction

Cathy Clarke, CPA Audit and Assurance Quality Principal, CliftonLarsonAllen • More than 19 years of experience • Primary responsibilities include being a technical resource for the audit

and assurance practice and quality review of assurance and accounting engagements.

• Experience in conducting training sessions for audit and accounting staff within CliftonLarsonAllen and for the Minnesota Society of CPAs.

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Famous Quotes “Television won't last because people will soon get

tired of staring at a plywood box every night:

Darryl Zanuck– Movie Producer 20th Century Fox, 1946

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Famous Quotes “There is not the slightest indication that nuclear

energy will ever be obtainable. It would mean that the atom would have to be shattered at will

Albert Einstein, 1932

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Famous Quotes “I think there is a world market for maybe five

computers…”

Thomas Watson– Chairman of IBM, 1943

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Famous Quotes

“The NFP Reporting Project changes will help the reader better understand the liquidity position of NFP Organizations”

Ron Bossio – FASB Staff AICPA NFP Conference – June 2014

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Presentation of Financial Statements of Not-for-Profit Entities

FASB Exposure draft

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FASB Exposure Draft – Presentation of F/S

• Exposure draft issued April 22, 2015 • Comment letter due August 20, 2015

• Addressing following four issues: 1. Net Asset classification complexities 2. Inconsistencies in reporting operating measure

◊ Liquidity ◊ Financial performance

3. Inconsistencies in expense reporting 4. Misunderstanding of statement of cash flows

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Current FASB Projects

Financial Statements

for NFPs

Net Assets

Operating Measure

Expense Reporting

Cash Flows

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Current Presentation

Unrestricted Temporarily Restricted

Permanently Restricted

Proposed Presentation

Without Donor

Imposed Restrictions

With Donor Imposed

Restrictions

Net Assets

Two Categories Three Categories

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Presenter

Presentation Notes

Net Asset Classes��The Board tentatively decided to replace the existing requirements of paragraphs 958-225-45-1 to present the change in each of three net asset classes on the face of a statement of activities with similar requirements for two classes of net assets: with donor-imposed restrictions and without donor-imposed restrictions. The Board also decided to make conforming changes to the terminology and definitions of the net asset classes.��Related disclosures ��The Board also tentatively decided to retain the current requirement to provide information about the nature and amounts of different types of donor-imposed restrictions but modify the requirement to (a) remove the hardline distinction between temporary restrictions and permanent restrictions and (b) instead focus on describing differences in the nature with a focus on both how and when the resources (net assets) can be used. To address potential loss of information, the Board also decided to require disclosure of information about the amount and purposes of board designations of net assets without donor-imposed restrictions.��

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Net asset classification requirement

• Two classes – Donor-imposed restrictions

◊ Includes perpetual and temporary

– Without donor-imposed restrictions ◊ Includes board designated

• Disclosure requirement: – Remove distinction between temporary and permanent restrictions.

– Emphasis on how/when resources (net assets) can be used. ◊ Specified purpose ◊ Specified time ◊ Perpetual (endowment)

– Purposes of board designations.

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Presentation of Net Assets

Pros Easier, not as

complex

Easier for reader to understand

Other?

Cons Less Transparency on face of what is

to be held in perpetuity

Disconnect between internal

tracking and financial statement

Doesn’t address liquidity concern

Other?

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Presenter

Presentation Notes

Have group discussion here regarding pros and cons of suggested presentation.

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Underwater Endowments

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• Reported within “with donor restrictions” class of net assets.

• Disclose – Policy to spend from underwater funds – Original gift of underwater funds (in aggregate) – Fair value of underwater funds (in aggregate)

Presenter

Presentation Notes

Underwater Endowments��The Board decided to require that so-called underwater amounts should be reported within the proposed with donor restrictions class of net assets (rather than within unrestricted net assets as currently required). The underwater amount is the amount by which the fair value of an individual donor-restricted endowment fund is less than the original gift amount or level required by donor stipulations or law. An NFP entity also would be required to disclose the following information: The board’s policy or decision on whether to reduce or not spend from underwater endowment funds Original gift amount (or level required by donor stipulations or law) of underwater endowment funds in the aggregate Fair value of underwater endowment funds in the aggregate.

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for NFPs

Net Assets

Operating Measure

Expense Reporting

Cash Flows

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Operating Measures

Intermediate Operating Measure

Investment Return

Liquidity Disclosures

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Financial Performance – Intermediate Operating Measure • Required to present intermediate measure of

current operations. – Currently optional – Entity discloses policy

• Defined by two key dimensions: – Mission – Availability (for current operations)

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Presenter

Presentation Notes

Present all legally available mission related revenues before reductions for amounts designated by the governing board for use in future periods Require the presentation of the intermediate measure of operations by all NFPs, including Health Care

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Operating indicators – 2 is better than 1

• Operating excess, before transfers – Operating indictor #1 – Mission based

• Transfers – Items relating to availability

• Operating excess, after transfers – Operating indicator #2

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Mission

• Present all mission-related revenues prior to reductions for amounts designated by the governing board for use in future periods (vs net)

• Gifts may be from carrying out current period activities – Transfer out those not be available for current period.

• Investing and financing activities generally would NOT meet definition.

• Equity transactions are also excluded 22

Presenter

Presentation Notes

Guidance for the mission dimension would note that (a) all gifts result from carrying out the NFP's activities but are not necessarily available for current period activities, (b) all legally available mission-related revenues are to be presented before reductions for amounts designated by the governing board for use in future periods (rather than only the net of those amounts), (c) investing and financing activities, other than those directed at carrying out the NFP’s programs, would not meet the mission dimension (and thus fall outside of the intermediate measure of operations). Investing and financing activity directed at carrying out the NFP’s programs, sometimes referred to as programmatic investing, would include items such as interest earned on an educational institution’s student loans, a foundation’s subsidized loans to support grantees, and similar lending directed at achieving the NFP’s purposes.

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Availability

• For current operations

• Internal availability – Board Designated

• External availability – Gift of long-lived assets – Donor restrictions

• Transfer out in year received, transfer in year used

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Presenter

Presentation Notes

The guidance would note that in that case an NFP would report a transfer out of current operations for the amount of the gifted long-lived asset expected to be utilized in future periods. In subsequent periods, the NFP would report transfers back into current operations to the extent long-lived assets are utilized during the current reporting period. Those transfers are sufficiently different from governing board designations and should be presented discretely.�Similar actions would include placing a gift of a long-lived asset in service (rather than selling it), which effectively results in the entity making all or a portion of the asset’s economic benefit unavailable for current operations. The guidance would note that in that case an NFP would report a transfer out of current operations for the amount of the gifted long-lived asset expected to be utilized in future periods. In subsequent periods, the NFP would report transfers back into current operations to the extent long-lived assets are utilized during the current reporting period. Those transfers are sufficiently different from governing board designations and should be presented discretely.��The forthcoming Exposure Draft will include a question about whether the benefit of reporting all capital-like gifts consistently outweighs the potential reduction in both costs and complexity for users if small or ongoing capital-like gifts were not subject to the requirement to report transfers out of and subsequently back to operations. The Board previously decided that all unrestricted gifts are reported within the intermediate measure of operations. The Board concluded that by placing a gift of a long-lived asset in service (rather than selling it), the entity effectively is making all or a portion of the asset’s economic benefit unavailable for current operations. Therefore, consistent with the availability dimension underlying the definition of that measure of operations, an NFP would report a transfer out of current operations for the amount of the gifted long-lived asset expected to be utilized in future periods. In subsequent periods, the NFP would report a transfer back into current operations to the extent long-lived assets are utilized during the current reporting period. The Board also decided that although those transfers are reported in ways that are similar to governing board designations, they are sufficiently different and should be presented discretely. The Board also decided to require that an NFP use the placed-in-service approach for the treatment of expiration of restrictions related to long-lived assets, thus eliminating the option to release the donor-imposed restriction over an asset’s estimated useful life.��The Board directed the staff to include a question in the forthcoming Exposure Draft about whether the benefit of reporting all capital-like gifts consistently outweighs the potential reduction in both costs and complexity for users if small or ongoing capital-like gifts were not subject to the requirement to report transfers out of and subsequently back to operations.��

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Items outside of operating indictor

• Investment return (investing) – May be able to transfer “available” amount into

operations

• Interest expense (financing) • Equity transactions with affiliates • Non mission income/expense • Board designated for future periods

– Transfers in and out when available

• Pension transactions

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Presenter

Presentation Notes

Guidance for the availability dimension would note that (a) external limits often result from donor-imposed restrictions that limit the availability of donated resources for current period use until those restrictions are met and (b) internal limits often result from actions of an NFP’s governing board to designate resources for specific (limited) purposes or future periods and similar actions (see below) that effectively make resources unavailable for current operations.��

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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 25

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Intermediate Operating Measure

• Will be allowed to present subtotals

• Still allowed one or two statement approach – Statement of Activities – Statement of operation and Statement of Changes in Net

Assets

• Requirement to show change in unrestricted net assets no longer required.

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Presenter

Presentation Notes

Presentation Requirements and Flexibility��An NFP would be permitted, but not required, to report any specific subtotal before the intermediate measure of operations. For example, business-oriented health care providers would be permitted, but no longer required, to present the performance indicator that is currently required by paragraph 954-225-45-4. The Board tentatively decided that an NFP would continue to be allowed to use a one- or two-statement approach to present all of the revenues, expenses, gains, losses, and other events that change net assets or classes of net assets for the period. Furthermore, the Board tentatively decided that NFPs reporting an intermediate measure of operations no longer would be required (under paragraph 958-225-45-10) to report that measure in a statement that also reports the change in unrestricted net assets for the period. Accordingly, if desired, the first statement could end with the intermediate measure of operations when using a two-statement approach.��

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Financial Statements – Liquidity Disclosures • Classified Statement of Financial Position

– Requirement removed from final exposure draft

• Distinguishing Assets Limited as to Use – Requirement to display on face of statement removed

from final exposure draft – Enhanced note disclosures – Still allowed, just not required

• Enhanced note disclosure on external restrictions: – Donors – Contracts – Board of Directors

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Liquidity

Define time uses to manage liquidity

(30, 60 or 90 days)

Quantitative: A) Total Financial Assets

B) Amounts not available due to limitations

C)Total financial liabilities due within that time

Qualitative: Information on how

manages its liquidity for short term.

Other

DISCLOSURES

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Presenter

Presentation Notes

Liquidity��The Board tentatively decided that an entity should define the time horizon it uses to manage its liquidity (for example, 30, 60, or 90 days) and disclose quantitative and qualitative information that is useful in assessing liquidity. The quantitative information includes (a) the total amount of financial assets, (b) the amounts that are not available to meet cash needs within the time horizon due to various limitations, and (c) the total amount of financial liabilities that are due within that time horizon. In addition, the qualitative information would allow users to understand how the entity manages its liquidity. For example, the entity might disclose its strategy for addressing entity-wide risks that may affect liquidity, including its use of lines of credit, policy for establishing liquidity reserves, and/or basis for determining the time horizon used for managing liquidity.

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Liquidity We suggest……

1) If policy not already in place, adopt policy

addressing liquidity.

2) Review current policy to determine if any changes need to be made prior to implementation of required disclosure.

3) Periodically review to ensure addresses current economic factors.

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Investment Return

Net presentation of investment expenses against investment return.

– Both EXTERNAL and direct INTERNAL expenses – Removes requirement to disclose the gross investment

income and expense

P.S.-You should be doing this now!

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Presenter

Presentation Notes

- Discuss requirement of direct INTERNAL expenses. What could this include? How would you track?

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Reporting of Expenses

• Current requirement by Function for most NP’s – No changes for current functional statement requirement

if done already , but adds…..

• New requirement by Nature and all NP’s must report expenses functionally!

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Reporting of Expenses – One Location

Statement of Functional Expense

Statement of Activities Footnotes

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OR OR

Presenter

Presentation Notes

Discussion points: How many people already prepare statement of functional expenses? Thoughts on implementing? 990 requires? The Board tentatively decided to require an NFP to report expenses by their nature and retain the requirement to report expenses by their function. The Board also decided to require an NFP to provide an analysis of expenses by function and by nature in one location—in the statement of activities, a separate statement of expenses (currently called a statement of functional expenses), or a schedule in the notes. Investment expenses that are netted against investment return need not be included and other nonoperating expenses (for example, interest and other financing expenses) need not be functionalized. Although this analysis typically would be provided in the form of a matrix, that specific format would not be required.��

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for NFPs

Net Assets

Operating Measure

Expense Reporting

Cash Flows

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Presenter

Presentation Notes

Poll Audience - Who knows the major changes that are expected to come as it relates to the cash flow?

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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 38

CASH FLOW - DIRECT

Presenter

Presentation Notes

Mention governments currently have to do this. Isn’t FASB moving towards this for all its entities as well?

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Financial Statements – Cash Flow

Activity Presentation Previously…

Cash gifts – for long term assets for operations

Operating Financing

Cash payments to purchase, construct, or acquire long-lived assets for operating purposes

Operating Investing

Cash proceeds from sale of long-lived assets

Operating Investing

Cash dividends and interest income

Investing Operating

Cash payments of interest expense

Financing Operating

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Presenter

Presentation Notes

The Board discussed its prior tentative decision to recategorize certain cash inflows and outflows in a cash flow statement for NFPs and whether to proceed with those decisions in light of the uncertainty that the FPR research project will address the cash flow statement. The Board affirmed its prior decisions for NFPs to include cash (a) receipts of gifts to acquire long-lived assets in operating activities, (b) payments to acquire long-lived assets in operating activities, (c) receipts of interest and dividends in investing activities, and (d) payments of interest in financing activities. The Board also decided that, consistent with its decision for items (a) and (b), cash proceeds from the sale of long-lived assets should be classified as inflows from operating activities rather than as inflows from investing activities.��

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Issues addressed?

• FASB’s four main objectives: 1. Net Asset classification complexities 2. Inconsistencies in reporting operating measure

◊ Liquidity ◊ Financial performance

3. Inconsistencies in expense reporting 4. Misunderstanding of statement of cash flows

If answer NO to any of the above, submit your comment letter to the FASB!

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Additional Information

• www.fasb.org

• Next steps – Exposure Draft issued April 22, 2015

◊ 261 pages

– Comment Period deadline August 20, 2015 ◊ 22 specific questions

– Re-deliberation through winter 2016 ◊ FASB roundtable discussions

– Final Standard planned for summer 2016

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http://www.fasb.org/

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Consider use of MD&A

to tell your story!

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In the Meantime…..

Presenter

Presentation Notes

Ask how people tell there financial story? Does anyone currently prepare an MD&A? Would they find guidance helpful? Discuss project with Water for People where they wrote an MD&A.

twitter.com/CLAconnect facebook.com/ cliftonlarsonallen

linkedin.com/company/ cliftonlarsonallen

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CLAconnect.com

Cathy Clarke Chief Assurance Officer [email protected] 612-376-4535 Harold Parsons [email protected] 612-397-3058

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http://www.twitter.com/CLA_CPAs

http://www.facebook.com/CliftonLarsonAllen

http://www.linkedin.com/company/cliftonlarsonallen

fasb’s nfp reporting project · 2016-07-18 · presentation of net assets . pros . easier, not as...

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