FINANCIAL REPORTING FOR THE NONPROFIT SECTOR

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Presented by Martha HultzmanLGC+D Audit Principal

mhultzman@lgcd.com

FASB proposal and UGG update

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 – )

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GOAL

• Exposure draft issued 4/22/2015

• Comment period ended 8/19/2015

• Final Ruling expected within 6-9 months

STATUS

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Primary Users of

NFP Financial Stateme

nts

Donors

Banks

Audit Committee

Management

Bond Holders

Grantors

Lenders

Board Members

Of which many are not nonprofit experts

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THIS SECTION PROVIDES:• An overview of significant

proposal components• Suggested action items and• An overview of comments

submitted to the FASB by the AICPA

NET ASSET CLASSES

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Current Reporting Proposed Update Action Items AICPA Comment

• Unrestricted

• Temporarily Restricted

• Permanently Restricted

• “Donor Restrictions”

• With & Without on face of financial statement

• Permanent and Temporary in footnotes

• Only outside interests can impose restrictions

• Boards may designate, not restrict

• Talk to lenders about debt covenants

• Segregation of assets limited to use should be required on face of fin. Statement

• Disclosure nature of amount of net assets w/o restrictions

STATEMENT OF CASH FLOWS

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Current Reporting Proposed Update Action Items AICPA Comment

• Indirect method focusing on changes in assets and liabilities

• Consistent with methods used by businesses

• Direct Method

• Focuses on nature of receipts and disbursements

• Significant overhaul of internal accounting systems to capture relevant information

• May cause stakeholder confusion

• Undue burden on NFPS

• Should be deliberated concurrently with for-profit entities

REPORTING EXPENSES

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Current Reporting Proposed Update Action Items AICPA Comment

• Functional Expense statement/Disclosure

• Required for VHW orgs

• Report expenses by nature & function

• Reported: on face of statement, separate statement or in footnotes

• VHW’s no longer required to prepare full statement

• Required to report methods of allocating costs

• Set up allocation methods

• May need to revamp : chart of accounts or spreadsheets

• Create controls to monitor allocations & operational changes

• Required only for NFPs that derive revenue primarily from voluntary contributions and the general public

OPERATING INDICATOR

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Current Reporting Proposed Update Action Items AICPA Comment

• Prescribed for healthcare – all others define based on nature ( may lead to inconsistent classification)

• Add 2 subtotals to statement of activities – intermediate measures

• #1: operating revenues, support, expenses, gains/losses w/o donor imposed restrictions & before internal transfers

• #2: effects of internal transfers

• Intermediate measures only include amounts directed at NFP’s purpose of existence

• Transfers = broad connotation & range from small to significant

• Discussions with stakeholders about nature of internal transfers & concept of availability

• Heightened importance of information reporting between development and finance

• 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

DISCLOSURE OF LIQUIDITY

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Current Reporting Proposed Update Action Items AICPA Comment

• Classified balance sheet required for HC NFP’s

• Assets limited to use required to be present as non-current

• Expands disclosure

• Includes inflows and outflows based on NFP’s cycle – no more than 90 days

• A/P, Accrued payroll, & A/R information should be available

• Other assets & liabilities may be difficult to compute

• Not in favor

• Mandate classified balance sheet for all NFPs

• Concerned it will add cost, & complexity w/ little value

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

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THIS SECTION PROVIDES:• An overview of the new uniform

guidance• Effective Dates

UNIFORM GRANT GUIDANCE

UNIFORM GRANT GUIDANCE IS YOUR ORGANIZATION AT RISK OF LOSING ITS 2016 FEDERAL

FUNDING?

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Goal

• 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

• 2015 is the first year you will need to comply• Organizations that do not comply are at risk of losing their federal funding

Changes?

• You may need to learn and adjust internal controls to comply• i.e., payroll processing and procurement

UNIFORM GRANT GUIDANCE

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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

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

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