The document discusses new accounting standards for not-for-profit organizations that require enhanced liquidity disclosures. The Financial Accounting Standards Board amended reporting to improve transparency around an organization's short-term liquidity. Not-for-profits will now have to disclose quantitative and qualitative information about their ability to cover general expenditures for at least a year. They must also provide details on any internal or external restrictions that affect their liquid assets. The changes aim to give users a better understanding of an organization's financial flexibility and ability to meet near-term demands. Not-for-profits should review their cash policies before implementing the new liquidity reporting standards in 2018.

1. MAYER HOFFMAN MCCANN P.C. – AN INDEPENDENT CPA FIRM
MHMMessenger
877-887-1090 | www.mhmcpa.com | @mhm_pc Mayer Hoffman McCann P.C.
TM
Copyright ©2016, Mayer Hoffman McCann P.C. All rights Reserved.
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
A publication of the Professional Standards Group
December 2016
Presenting the New Not-for-Profit Financial Statement: Liquidity
Liquidity reporting numbered among the key
reasons the Financial Accounting Standard Board
(FASB) amended financial statement reporting for
not-for-profit organizations in August 2016. The
FASB designed Accounting Standards Update
(ASU) 2016-14, Not-for-Profit Entities (Topic 958),
Presentation of Financial Statements of Not-for-Profit
Entities to enhance transparency in the reporting of
assets not-for-profit organizations can use to cover
short-term needs. The changes made will affect
reporting on liquidity and could have ramifications
for not-for-profit organizations and the users of their
financial statements.
Background
Current U.S. generally accepted accounting principles
(U.S. GAAP) requires not-for-profits to present their
assets based on the presence of donor-imposed
restrictions. Assets can be permanently restricted,
temporarily restricted or unrestricted.
The unrestricted net asset designation comes
with some confusion, because although assets
do not specifically have donor restrictions, many
are committed to other projects. The current U.S.
GAAP definition of unrestricted net assets does not
adequately cover limits imposed by donors, grantors,
laws, contracts or governing boards that would affect
the not-for-profit organization’s ability to use the asset
to cover any immediate needs for capital.
Finding the Solution in Disclosures
Unrestricted net assets will continue to be classified as
such, but the ASU enhances disclosures surrounding
unrestricted net assets. The disclosures are designed
to clarify some of the issues noted in current
U.S. GAAP.
When the accounting standard begins its rollout in the
2018 calendar year, not-for-profit organizations will be
required to disclose information about their governing
board restrictions, including amounts and purpose
for the appropriation. Other organization-imposed
limits will also be disclosed. Additionally, not-for-
profit organizations will provide qualitative information
about how they manage their liquid resources to
meet cash needs for general expenditures within a
year of the statement of financial position, or balance
sheet date.
Quantitative information that supports the qualitative
statement will also need to be disclosed, either in the
balance sheet or in the notes, to indicate the financial
assets that will be used to meet the cash needs as
of the balance sheet date. Assets should be able
to cover cash needs within one year of the balance
sheet date. Not-for-profit organizations will also need
to disclose how the financial assets to be used for
cash needs would be affected by the nature of the
asset, external limits placed by donors, grantors, laws
and contracts with others as well as any internal limits
placed on the asset by the governing board.
Taken together, the liquidity disclosures are designed
to illustrate an organization’s financial flexibility as well
as the internal limits placed on how the organization
uses its assets. They should provide users of
financial statements an overview of the methods

2. MHMMessenger
Copyright ©2016, Mayer Hoffman McCann P.C. All rights Reserved.
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that is a member firm of Kreston International Limited, a global network of independent accounting firms.
877-887-1090 | www.mhmcpa.com | @mhm_pc Mayer Hoffman McCann P.C.
2
The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please
contact your MHM auditor to further discuss the impact on your audit or audit report.
used to meet the demands for short-term cash and
the ability of organization to put resources toward its
crucial services.
Impact on Reporting
Not-for-profit organizations should carefully review
their policies for covering short term cash needs prior
to the implementation date of the new standard. Not-
for-profit organizations must adopt the standard for
fiscal years ending December 31, 2018 and later.
The new requirement may be shedding more light
on internal spending policies, and not-for-profit
organizations should ensure that the policies allow
the organization to cover expenses as needed. It is
recommended that governing boards be involved in
some of the discussions in case board-designated
fund amounts need to be adjusted in order for
organizations to demonstrate they can meet their
short-term needs for cash.
For assistance in understanding the impact of the
liquiditystandardsaswellastheotherchangesbrought
by ASU 2016-14, please contact Michelle Spriggs of
MHM’s Professional Standards Group. Michelle can
be reached at 774.206.8336 or mspriggs@cbiz.com.
► Previously
• Presenting the New Not-for-Profit
Financial Statement
• Net Asset Classes & Governing Board
Restrictions
• Operating Cash Flows & Investment
Returns
• Proposed Technical Updates to
Endowment Reporting