FINANCIAL REPORTING FOR THE
NONPROFIT SECTOR
FASB proposal and UGG update
Presented by Martha Hultzman
LGC+D Audit Principal
mhultzman@lgcd.com
1
FASB OVERVIEW
• Improve the clarity of NFP financial reporting
• Improve the consistency among different types of NFPs
(such as business oriented – healthcare – and contribution based – social services – )
• Exposure draft issued 4/22/2015
• Comment period ended 8/19/2015
• Final Ruling expected within 6-9 months
2
Board
Members
Audit
Committee
Lenders
Primary
Users of NFP
Financial
Statements
Banks
Management
Of which many are not nonprofit experts
Donors
Grantors
Bond
Holders
3
THIS SECTION PROVIDES:
•
•
•
An overview of significant proposal
components
Suggested action items and
An overview of comments submitted to the
FASB by the AICPA
4
NET ASSET CLASSES
Current Reporting
Proposed Update
•Unrestricted
•“Donor Restrictions”
•Temporarily Restricted
•With & Without on face of
financial statement
•Permanently Restricted
•Permanent and Temporary
in footnotes
Action Items
AICPA Comment
•Only outside interests can
impose restrictions
•Segregation of assets
limited to use should be
required on face of fin.
Statement
•Boards may designate, not
restrict
•Talk to lenders about debt
covenants
•Disclosure nature of
amount of net assets w/o
restrictions
5
STATEMENT OF CASH FLOWS
Current Reporting
•Indirect method focusing on
changes in assets and
liabilities
•Consistent with methods
used by businesses
Proposed Update
•Direct Method
•Focuses on nature of
receipts and disbursements
Action Items
•Significant overhaul of
internal accounting systems
to capture relevant
information
AICPA Comment
•May cause stakeholder
confusion
•Undue burden on NFPS
•Should be deliberated
concurrently with for-profit
entities
6
REPORTING EXPENSES
Proposed Update
Action Items
AICPA Comment
•Functional Expense
statement/Disclosure
•Report expenses by nature &
function
•Set up allocation methods
•Required for VHW orgs
•Reported: on face of statement,
separate statement or in
footnotes
•Required only for NFPs that
derive revenue primarily
from voluntary
contributions and the
general public
Current Reporting
•VHW’s no longer required to
prepare full statement
•May need to revamp : chart
of accounts or spreadsheets
•Create controls to monitor
allocations & operational
changes
•Required to report methods of
allocating costs
7
OPERATING INDICATOR
Current Reporting
•Prescribed for healthcare
– all others define based
on nature ( may lead to
inconsistent
classification)
Proposed Update
•Add 2 subtotals to statement of
activities – intermediate measures
•#1: operating revenues, support,
expenses, gains/losses w/o donor
imposed restrictions & before
internal transfers
Action Items
•Transfers = broad connotation
& range from small to
significant
•#2: effects of internal transfers
•Discussions with stakeholders
about nature of internal
transfers & concept of
availability
•Intermediate measures only include
amounts directed at NFP’s purpose
of existence
•Heightened importance of
information reporting between
development and finance
AICPA Comment
•Objectives are supported
•2 measure approach will cause
confusion; mission dimension
will vary and cause lack of
comparability
•Reporting based on HC rules
supported
•Should be deliberated
concurrently w/ for profit
entities
8
DISCLOSURE OF LIQUIDITY
Current Reporting
•Classified balance sheet
required for HC NFP’s
•Assets limited to use
required to be present as
non-current
Proposed Update
•Expands disclosure
•Includes inflows and
outflows based on NFP’s
cycle – no more than 90
days
Action Items
AICPA Comment
•A/P, Accrued payroll, & A/R
information should be
available
•Not in favor
•Other assets & liabilities
may be difficult to compute
•Concerned it will add cost,
& complexity w/ little value
•Mandate classified balance
sheet for all NFPs
9
ADDITIONAL PROPOSED UPDATES
•
Investment expenses must be netted against investment income
•
Operating revenues & cash flows to include gifts of or for long-lived assets
•
Add disclosure about spending underwater endowment funds
•
Interest expense is not directed at carrying out an org’s
purpose & should not be classified as operating
activity
10
UNIFORM GRANT
GUIDANCE
THIS SECTION PROVIDES:
•
•
An overview of the new uniform guidance
Effective Dates
11
UNIFORM GRANT GUIDANCE
IS YOUR ORGANIZATION AT RISK OF LOSING ITS 2016 FEDERAL FUNDING?
Goal
2015
Changes?
•Streamline requirements from 8 different grant circulars
•Strengthen oversight
•Reduce risk of waste, fraud, and abuse
•Ensure nonprofits are reimbursed all costs when working with entities using federal funding
•2015 is the first year you will need to comply
•Organizations that do not comply are at risk of losing their federal funding
•You may need to learn and adjust internal controls to comply
•i.e., payroll processing and procurement
12
UNIFORM GRANT GUIDANCE
Old Guidance
New Uniform
Guidance
Effective Date
Threshold of expenditures
of federal awards
$500,000
$750,000
Fiscal years beginning
after 12/26/2014
Threshold of
Type A Major Program
$300,000
$750,000
SAME
Percentage of awards to
test: low risk
25%
20%
SAME
Percentage of awards to
test: other than low risk
50%
40%
SAME
13
QUESTIONS? COMMENTS?
Laura and Dave on the Affordable Care Act
If you have any questions or would like to discuss further, please see us after the presentation.
Thank you!
Martha Hultzman on FASB and UGG
If you have any questions or would like to discuss further, please see me after the presentation or drop
your business card in the bowl by the door.
Thank you!
If you’d like to sign up for our NFP mailing list – text “LGCDMAIL” to 22828
14