McKonly & Asbury’s July webinar entitled, “Not-For-Profit Organizations: Lessons Learned from Implementation of the New Financial Reporting Standard” took place on Thursday, July 25, 2019. The webinar was hosted by Gary Dubas, Partner and Director of McKonly & Asbury’s Nonprofit Practice, Janice Snyder, Partner and Co-Director of the Assurance Practice, and Jim Shellenberger, Principal and Leader in the Nonprofit Practice.

1. Lessons Learned From the
Implementation of the New Not-
for-Profit Financial Reporting
Standards!

2. Introductions
Janice Snyder, CPA
▻ Partner
▻ Audit Segment Leader
▻ Industry specializations: Healthcare,
Nonprofits, Food Manufacturers/Distributors
▻ Experience the Magic
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3. Introductions
Gary Dubas, CPA
▻ Partner
▻ Not for Profit Industry Leader
▻ Industry specializations: Nonprofits,
Affordable Housing, IRS form 990
▻ Par for the Course!
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4. Introductions
Jim Shellenberger, CPA
▻ Principal
▻ Not-For-Profit Leadership Team
▻ Industry specializations: Nonprofits,
Affordable Housing, Uniform Guidance
▻ To Dare is To Do!
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5. Disclaimer
The information contained in this presentation, both that
contained in the slides and that expressed by the presenter, is
not intended to be complete and comprehensive. To obtain a
more detailed understanding of technical literature mentioned,
please consult the full standards and interpretations.
There are also many other topics not being covered due to their
narrow applicability or time constraints.
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6. Agenda
1. Not-For-Profit Financial Reporting Changes – A Brief
Overview
2. Lessons Learned and Best Practices from
Implementation (so far)
3. Q&A – This standard and any others!
Objective: To further understand these standards and their
implementation challenges.
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7. Not-For-Profit
Financial Reporting
ASU 2016-14
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8. Not-For-Profit Financial Reporting
FASB ASU 2016-14 Released August 18, 2016
Effective NOW!
(Year ends 12/31/2018, 3/31/2019,
6/30/2019 & 9/30/2019)
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9. Not-For-Profit Financial Reporting
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5 Major Changes
Net Asset
Classification
With and Without
Donor Restrictions
Investment Return
Investment return net of all
related external and direct
internal expenses
Statement of
Cash Flows
Free choice between direct
or indirect method.
Expenses
Present expenses
by both the natural
and functional
classifications.
Liquidity & Availability
of Resources
Qualitative & quantitative
information about the availability of
resources to meet cash needs within
one year of the balance sheet date.

10. Statement of Cash Flows
Overview of Changes and
Lessons Learned
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11. Statement of Cash Flows
▰ Free choice between using the direct or indirect method of
reporting operating cash flows.
▰ If using the direct method, nonprofit organizations are not
required to also present the indirect method reconciliation, as
currently required.
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12. Statement of Cash Flows
▰ Lessons Learned:
▻ Don’t do it unless you have to!
▻ User will typically prefer the direct method, but consider
accounting/finance department constraints and the
cost/benefit of using the direct method.
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13. Investment Return
Overview of Changes and
Lessons Learned
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14. Investment Return
▰ Presented on a net basis, with all external and direct internal
investment management and custodial expenses netted against
the return.
▰ Show one line “Investment return” or “Income from Investments”
▰ Eliminates the current requirement to disclose the investment
income components and expenses separately.
▰ More comparable measure of investment return across all
not-for-profit organizations.
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15. Investment Return
▰ Direct internal expenses include the direct conduct or direct
supervision of the strategic and tactical activities involved in
generating investment return.
▻ Salaries, benefits, travel and other costs associated with staff
responsible for development and execution of investment strategy,
including supervision, selecting and monitoring external managers.
▻ Excludes costs not associated with generating investment return,
such as administrative management, contracts, pooled-fund
administration.
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16. Investment Return
▰ Lessons Learned:
▻ Identification of direct internal expenses, if any.
▻ If there are direct internal expense, are they material enough to
warrant the administrative burden to accumulate?
▻ Changes/updates to investments disclosures not considered
early in the process. Use new standard as a reason to
streamline lengthy, and not required, disclosures.
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17. Net Asset Classification
Overview of Changes and
Lessons Learned
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18. Net Asset Classification
Replaces the existing three classes of net assets with two new
classes of net assets:
▻ Net Assets With Donor Restrictions
▻ Net Assets Without Donor Restrictions
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Unrestricted Temporarily Restricted Permanently Restricted
Without Donor
Restrictions
With Donor
Restrictions

19. 19
NEW
PRESENTATION

20. 20
NEW
PRESENTATION

21. Net Asset Classification
▰ Enhanced disclosure requirements
▻ Disclosures for board-imposed limits on the use of net assets without
donor restrictions (Quantitative and Qualitative)
▻ Composition of net assets with donor/grantor restrictions and emphasis
on how/when net assets can be used (purpose, time, perpetual)
▰ Highlight how restrictions and board-imposed limits impact
liquidity and the use of available resources.
▰ Underwater endowment funds – losses included net assets
with donor restriction and additional disclosures.
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22. Net Asset Classification
▰ Lessons Learned:
▻ Determine early the level of disaggregation. Use as an
opportunity to streamline reporting, to the extent
possible.
▻ Board does not have appropriate policies in place for
designated net assets, underwater endowment funds, etc.
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23. Net Asset Classification
▰ Lessons Learned:
▻ Two year comparison for disclosures can require additional
effort. Some organizations are choosing single year
presentation (if permitted).
▻ Are organizations maintaining adequate schedule of support
for restrictions if not maintained in the accounting software /
general ledger.
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24. Liquidity and Availability of
Resources
Overview of Changes and
Lessons Learned
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25. Liquidity & Availability of Resources
▰ Quantitative information about the availability of financial assets as
of the date of the statement of financial position.
▻ Availability may be affected by: Nature of the assets, external limits,
and internal limits.
▰ Qualitative information about how a not-for-profit organization
manages its available resources to meet cash needs within one year
of the date of the statement of financial position.
▻ Consider lines of credit, operating reserves, board designated
net assets, etc.
▻ Forecasting, guiding principles, and target on-hand cash.
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26. 26
NEW PRESENTATION –
Example
Note 2 – Liquidity and Availability
Financial assets available for general expenditures, that is, without donor or other restrictions
limiting their use, within one year of the balance sheet dates, comprise the following:
Cash $ 1,351,000
Accounts Receivable, net 420,000
Total Financial Assets $ 1,771,000
As part of ABC Company’s liquidity management, it has a policy to structure its
financial assets to be available as its general expenditures, liabilities, and
other obligations come due. To help manage unanticipated liquidity needs, ABC Company has
committed lines of credit in the amount of $200,000, which it could draw upon as further disclosed
in Note 7.
Note: Cash = $1,400,000 from
balance sheet less $49,000 of
funds restricted in perpetuity.

27. Liquidity & Availability of Resources
▰ Lessons Learned:
▻ Lack of policies in place by management to manage resources.
Start the discussion early!
▻ Organizational leadership approval of information to include in
the disclosure (especially if there are limited financial assets)
▻ Failure to identify resources designated for future projects, such
as capital projects.
▻ Table format has been the preferred method. This makes it easy
to agree to the statement of financial position.
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28. Functional Expenses
Overview of Changes and
Lessons Learned
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29. Functional Expenses
▰ Requirement for all not-for-profit organizations to present expenses
by both the natural and functional classifications
▻ Natural: Salary, Rent, Office Supplies, etc.
▻ Functional: Program, Mgt & General, and Fundraising
▰ Required to be presented in one location:
▻ Statement of Activities
▻ Separate Statement (Statement of Functional Expenses)
▻ Notes to the Financial Statements
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30. Functional Expenses – Example
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Requirements of the ASU are more significant than the Form 990!
Source: AICPA Financial Statement Presentation on June 10, 2018

31. Functional Expenses
▰ Include a description of the method(s) used to allocate costs among program
and support functions.
▰ When to Allocate Management & General:
▻ Activities that represent direct conduct or direct supervision of program or other
supporting activities to those program. Examples:
▻ IT – benefits various functions and generally would be allocated
▻ CEO – Program, Mgt & General, and Fundraising
▻ CFO – Mgt & General and Investment Expense
▻ HR – Generally would assign all to Mgt & General
▻ Grant Accounting/Reporting – program reports would be Program, but financial reports
would be Mgt & General
▰ Depreciation and interest expense is expected to be allocated!
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32. Functional Expenses
▰ Lessons Learned:
▻ Decide on a method of presentation that is most useful to the reader
▻ Separate statement most common
▻ Determine the significant and material programs
▻ Use IRS Form 990 as a starting point for programs
▻ Update footnote #1 to disclosure
▻ Keep it simple and use materiality. Not every natural expense needs its
own line.
▻ Document methodology for allocation of expenses.
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33. Functional Expenses
▰ Lessons Learned:
▻ Changes/reclassification of prior year amounts if presenting
comparative.
▻ Excluding costs from the schedule of functional expenses, such as cost
of good sold, special event costs, etc. The only expense to exclude is
external and direct internal investment expense.
▻ No allocation of depreciation and interest expense
▻ Disclosure of allocation method (i.e. time and effort, sq footage, etc.) in
table format
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34. Q&A
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35. Submitted During Webinar Registration
▰ Do these apply to very, very small NFP organizations?
Does size matter as far as the standards go?
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36. ▰ What are the biggest hurdles your clients have faced
with the functional expense disclosures?
▰ How broad/detailed do the expenses lines need to be for
the natural / program (functional) classifications?
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Submitted During Webinar Registration

37. Live Q&A
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38. Questions?
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Janice Snyder, CPA
Partner
jsnyder@macpas.com
Gary Dubas, CPA
Partner
gdubas@macpas.com
Jim Shellenberger, CPA
Principal
jshellenberger@macpas.com