FASB ASU 2016-14: Liquidity Disclosures
The quantitative disclosure may be affected by the nature, external limits imposed by donors, grantors, laws, and contracts with others, and internal limits imposed by governing board decisions on assets. The nature of certain assets would be excluded from the quantitative disclosure due to the inability to liquidate assets such as alternative investments with lock-up provisions. External limits by donors, grantors, laws, and contracts with others may include net assets with donor restrictions for endowments or capital projects, annuity reserves required by state law, or restricted cash held as a minimum balance threshold for debt. Internal limits imposed by the governing board would include quasi-endowments.
The Financial Accounting Standards Board (FASB) has allowed an exemption of presenting the liquidity disclosure comparatively in the year of adoption. This exemption is intended to make adopting the ASU comparatively less difficult and encourage organizations to maintain comparative financial statements in the year of adoption.
Financial Statement Disclosure Examples
In order to meet the disclosure requirements, here are two examples of liquidity disclosures:
NFP A has $395,000 of financial assets available within one year of the balance sheet date to meet cash needs for general expenditure consisting of cash of $75,000, contributions receivable of $20,000, and short-term investments of $300,000. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditure within one year of the balance sheet date. The contributions receivable are subject to implied time restrictions but are expected to be collected within one year. NFP A has a goal to maintain financial assets, which consist of cash and short-term investments, on hand to meet 60 days of normal operating expenses, which are, on average, approximately $275,000. NFP A has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. In addition, as part of its liquidity management NFP A invests cash in excess of daily requirements in various short-term investments, including certificates of deposit and short-term treasury instruments. As more fully described in Note X, NFP A also has committed lines of credit in the amount of $20,000, which it could draw upon in the event of an unanticipated liquidity need.
NFP A’s endowment funds consist of donor-restricted endowments and a quasi-endowment. Income from donor-restricted endowments is restricted for specific purposes and, therefore, is not available for general expenditure. As described in Note Y, the quasi-endowment has a spending rate of 5%. $1.65 million of appropriations from the quasi-endowment will be available within the next 12 months.
As part of NFP A’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. In addition, NFP A invests cash in excess of daily requirements in short-term investments. To help manage unanticipated liquidity needs, NFP A has committed lines of credit in the amount of $20 million, which it could draw upon. Additionally, NFP A has a quasi-endowment of $33 million. Although NFP A does not intend to spend from its quasi-endowment other than amounts appropriated for general expenditure as part of its annual budget approval and appropriation process, amounts from its quasi-endowment could be made available if necessary. However, both the quasi-endowment and donor-restricted endowments contain investments with lock-up provisions that would reduce the total investments that could be made available (see Note X for disclosures about investments).
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