New NPO Reporting Model

Transcription

1 National Head Start Association 44 th Annual Head Start Conference and Expo April 7 10, 2017 Nashville, TN Hyatt Regency Chicago New NPO Reporting Model Monday, April 10, :00 am 10:30 am Presented by: Denes L. Tobie, CPA, Partner NONPROFIT AND GOVERNMENT PRACTICE Reproduction or use of any training materials in this manual, except within a participant s agency without express written permission is prohibited by copyright law.

2 New NPO Reporting Model Trainer: Denes L. Tobie, CPA, Partner 1 Materials/Disclaimer Please note that these materials are incomplete without the accompanying oral comments by the trainer(s). These materials are informational and educational in nature and represent the speakers' own views. These materials are for the purchasing agency s use only and not for distribution outside of the agency or publishing on a public website. 2 New NPO Reporting Model 1

3 Agenda Why now? Understand the main components of the new standard Review examples of what the changes will look like Discuss strategy for implementation Timing for implementation Phase II! 3 What is the FASB doing? 4 New NPO Reporting Model 2

4 FASB Modifies Not-for-Profit Financial Reporting Rules The standard update is designated to help notfor-profits tell their story through their financial statements. Improve relevance, transparency, and comparability Simplification More and better information surrounding resources (including usage and restriction) Current guidance has been effective since FASB Modifies Not-for-Profit Financial Reporting Rules 6 New NPO Reporting Model 3

5 Main Components of Phase I Changes 7 FASB Modifies Not-for-Profit Financial Reporting Rules Key Phase I Changes: Improving presentation and disclosures for net asset classes (net asset classification) Allowing usage of direct OR indirect method in presenting cash flows Enhancing information about the liquidity and availability of financial resources Providing better information about expenses and expense allocation Improving reporting of investment return 8 New NPO Reporting Model 4

6 Net Asset Classification *NFP s may choose to disaggregate further **New disclosure requirement 9 Net Asset Classification Statement of Financial Position Current GAAP: NEW GAAP: 10 New NPO Reporting Model 5

7 Net Asset Classification Statement of Activities Current GAAP: NEW GAAP: 11 Net Asset Classification Disclosures Amount, Purpose, and Type of Board Designations OR - Can be on the face - In the footnotes Nature and Amount of Donor Restrictions OR - Can be on the face - In the footnotes Examples: - Quasi-endowments - Future expenditures - Capital needs Examples: - Assets with stipulations for preservation (works of art or land) - Assets to be invested (endowments) - Support of particular activities - Use in a specified future period - Acquisition of long-lived assets 12 New NPO Reporting Model 6

8 Net Asset Classification Disclosures One step further: This presentation would require expanded footnote disclosure 13 Net Asset Classification Endowments Underwater Endowments Change: Required to be included in net assets with donor restrictions, rather than in net assets without donor restrictions (current GAAP) Change: In addition to aggregate amounts by which funds are underwater, also disclose: Original gift amount (or amount required to be maintained by donor or law) The fair value of such funds Any governing body policy or decisions to spend, or not spend, from such funds 14 New NPO Reporting Model 7

9 Net Asset Classification Endowments 15 Net Asset Classification Endowments The previous slide provides an example of how to disclose the aggregate gift amount. Underwater amounts would be netted in accumulated investment earnings. The governing board policy and any actions regarding appropriation are up to your organization to determine and disclose. 16 New NPO Reporting Model 8

10 Net Asset Classification Expiration of Capital Restrictions Change: Requires placed in service method for releasing from restriction (no more implied time restrictions) Most common application for GF NFP s? Grant Funded Equipment 17 Net Asset Classification Expiration of Capital Restrictions Common footnote disclosure under current GAAP for GFE: 18 New NPO Reporting Model 9

11 Net Asset Classification Expiration of Capital Restrictions Example footnote disclosure under NEW GAAP: 19 Cash Flow Statement The standard will continue to allow a choice between the direct method and the indirect method in presenting cash flows Key change: if the direct method is presented, the standard no longer requires indirect reconciliation 20 New NPO Reporting Model 10

12 Cash Flow Statement Direct Method Example: RECONCILIATION NO LONGER REQUIRED 21 Cash Flow Statement Indirect Method Example: 22 New NPO Reporting Model 11

13 Liquidity and Availability of Resources Qualitative Information: What: How does the NFP manage its liquid available resources and its liquidity risk? Where: Footnotes Quantitative Information: What: How are the NFP s assets available at the statement of financial position date to meet cash needs for general expenditures within one year Where: Either on the face and/or the footnotes 23 Liquidity and Availability of Resources Qualitative Information Example: Quantitative Information Example: The Organization maintains cash and cash equivalents on hand to represent approximately 6 months of general operating expenditures. These balances are held in liquid bank accounts or other securities or investments with maturities of 3 months or less. 24 New NPO Reporting Model 12

14 Expenses and Expense Allocation Change: Required now to report expenses either on the face of the financials OR in the footnotes by: Function* Natural Classification Analysis (disaggregate function by nature)** The standard also provides enhanced guidance on allocations from M&G expenses key concept: direct conduct or direct supervision *currently required in GAAP **choice of location; FASB may explore segment reporting instead for HC in Phase II 25 Expenses and Expense Allocation Change in definition of management and general: Supporting activities that are not directly identifiable with one or more program, fundraising, or membership-development activities. Which activities constitute direct conduct or direct supervision of a program or support function and, therefor would require allocation of costs? 26 New NPO Reporting Model 13

15 Expenses and Expense Allocation Example 1: The CFO has primary responsibility for: Accounting and reporting Short-term budgeting and long-term financial planning Cash management Direct oversight of the endowment 27 Expenses and Expense Allocation Program Management and General Fund-raising/ Development Accounting and Reporting Short-term budgeting/long-term financial planning Cash management Direct oversight of the endowment (investment expenses) 28 New NPO Reporting Model 14

16 Expenses and Expense Allocation Example 2: An accountant is responsible for: Federal and state grant accounting and reporting. Including a fiscal report required to be filed that details expenses incurred and charged against the grant. 29 Expenses and Expense Allocation Program Management and General Fund-raising/ Development Grant accounting and reporting Rationale: the fiscal report is not part of the direct conduct or direct supervision of the grant, but rather is an accounting function. 30 New NPO Reporting Model 15

17 Expenses and Expense Allocation Example : A CEO is responsible for: Direct oversight of a research program Maintaining current and soliciting potential donors Indirectly supervising other areas of the organization 31 Expenses and Expense Allocation Program Management and General Fund-raising/ Development Direct oversight of research program Indirectly supervising other areas of the organization Maintaining current and soliciting potential donors 32 New NPO Reporting Model 16

18 Expenses and Expense Allocation NFP s also required to provide qualitative disclosures about methods used to allocate costs among program and support functions Example Qualitative Disclosure: 33 Expenses and Expense Allocation Example Analysis: 34 New NPO Reporting Model 17

19 Investment Return Change: requires netting investment expenses against investment return on the face of the statement of activities (netting limited to external and direct internal (conduct or supervision) expenses) Disclosure no longer required 35 Strategy for Implementation 36 New NPO Reporting Model 18

20 Implementation Strategy Toolkit Wipfli is in the process of developing one, other firms probably have something similar Lays out the information necessary to complete the changes to the financial presentation that are required Review and understand early so you re not scrambling when the time comes for implementation Utilize others outside of fiscal (development, etc.) in information gathering 37 Implementation Strategy Discuss with your auditors Discuss early implementation if it s something you re interested in Ask your auditors if they have a toolkit or information gathering tool they d like you to use If you prepare your financial statement draft, work collaboratively to ensure you don t miss anything significant to avoid findings Even if you don t prepare your financial statement draft, talk with your auditors so that they know you understand what s required 38 New NPO Reporting Model 19

21 Implementation Strategy There shouldn t be a need to change internal processes/procedures will mostly be data gathering and presentation 39 Timing for Implementation 40 New NPO Reporting Model 20

22 Get Ready Early Effective date for implementation: For fiscal years beginning after December 15, 2017 (essentially fiscal years ending December 31, 2018 and after) Early Adoption: permitted, but must apply the regular transition provisions. Transition: For year of adoption: apply all provisions For comparative years presented: apply all provisions, except can choose not to present: Analysis of expenses by nature and function*, and /or Disclosures around liquidity and availability of resources *unless already required to do so under current GAAP 41 Get Ready Early Other important notes: NFP s are already permitted to incorporate many of the changes required (e.g. netting investment expenses, presenting expenses by nature and function, using placed in service approach, etc.) The only changes that cannot be implemented without formal adoption of the standard are: Changing the net asset classification Change classification of underwater endowment net assets Eliminating net investment expenses disclosure Eliminating requirement to present indirect reconciliation if direct method of cash flow reporting is used 42 New NPO Reporting Model 21

23 Phase II 43 Phase II Will deal with more controversial topics Whether to require an operating measure for not-forprofits (and how to define if so) Whether a not-for-profit should present segment information instead of expenses by nature and function Some may apply only to notfor-profits that appear to operate like business (e.g. health care NPO s) New NPO Reporting Model 22

24 Connect with me: Bring Wipfli to You: Tammy T. Jelinek My Wipfli Access to our experts: Regulation questions Audit Process Human Resource Technology Leadership 45 New NPO Reporting Model 23