2012 Anderson ZurMuehlen & Co., P.C. Jacki Frank, CPA, CGMA, Shareholder Anderson ZurMuehlen & Co., P.C. October 1, 2015

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1 Jacki Frank, CPA, CGMA, Shareholder Anderson ZurMuehlen & Co., P.C. October 1, 2015

2 Current reporting model: Originally issued in June 1993, effective for fiscal years ending after December 15, 1994 Established the concept of unrestricted, temporarily restricted, and permanently restricted reporting. Stakeholder comments and the recent financial crisis indicate that a refresh of the model is necessary to better communicate the NFP s story: Performance Mission accomplishments Impact

3 NFP s Included: Charities Foundations Private colleges and universities Nonprofit healthcare providers Cultural institutions Religious organizations Trade associations Others NFP s Excluded: Investor-owned entities Mutual insurance entities Credit unions Farm and rural electric cooperatives Employee benefit plans

4 Net asset classes Financial Performance Reporting of Expenses Cash Flow Statement Liquidity NFP Notes 4

5 Current GAAP Unrestricted Temp. Restricted Perm. Restricted Proposed GAAP + Disclosures Without Donor Restrictions Amount, purpose, and type of board designations* * New disclosure requirement With Donor Restrictions Nature and amount of donor restrictions

6 URNA Misinterpretation TRNA Hodgepodge UPMIFA and PRNA/TRNA Distinction

7 Approach 1 Restrictions as primary cut Without Restrictions Operating Endowment Plant With Restrictions Operating Endowment Plant Approach 2 Purpose as primary cut Without restrictions Without restrictions Without restrictions Operating Endowment Plant With restrictions With restrictions With restrictions

8 Defined a required intermediate operating measure for all NFPs based on two dimensions: Mission (Business & Charitable Activity): based on whether resources are from or directed at carrying out an NFP s purpose for existence (vs. investing and financing) Availability: based on whether resources are available for current period activities and reflecting limits imposed by: -external donors -internal actions of an NFP s governing board

9 Require all available revenues separate from and before board designations Remove req. that if an operating measure is presented, then the change in unrestricted net assets must be shown (ASC ) NFP business-oriented health care entities no longer required to present the performance indicator

10 Operating activity revenues: All revenues from carrying out the NFP s purpose for existence (its mission), and are available for current period activities. Operating activity expenses: Expense from carrying out the NFP s purpose for existence (its mission), and are available for current period activities. Donor restricted contributions to support specified operating activities would not qualify as operating revenues in the current period, unless the restriction expires or is met within the current activity period.

11 Display alternatives Separate line(s) within: Operating Nonoperating Subsection within: Operating Nonoperating Expiration of capital restrictions Current U.S. GAAP alternatives: 1) when placed in service 2) over time, to match depreciation For comparability, do we need to eliminate one of the alternatives?

12 1 Statement Ability to present total revenue and contributions Effect of transfers easier to identify Too much information in one statement Labeling of totals difficult 2 Statement Retain Flexibility Greater emphasis on the operating measure Facilitates multi-year comparison Some may ignore the second statement Incorrectly equate the operating measure to net income

13 If transfers are used to reflect internal actions of an NFP s governing board, required to present: All transfers on the face of the statement of activities A subtotal for the amount of operating revenues and support in excess of expenses (e.g., operating excess before transfers) Transfers in a separate, discrete section within operating activities, after operating excess, and before the intermediate measure of operations (e.g., operating excess after transfers) At a minimum, present aggregated line items of transfers from and transfers to operating activities Provide details in a note unless all transfers are presented as discrete line items on the face Qualitative disclosures about NFP s use of transfers Major purposes and amounts of board transfers One-time decisions vs. recurring board policies

14 Without Donor Restrictions With Donor Restrictions Total OPERATING ACTIVITIES Revenue and support: Fees for services $ 495 $ 495 Bequests Other contributions 425 1,500 1,925 Restricted support released 1,375 (1,375) Revenue and support 2, ,020 Expenses: Expenses 1,950 1,950 Revenues and support in excess of expenses before transfers ,070 Transfers Transfers to operating activities 150 a 150 Transfers from operating activities (500) b (500) (350) (350) Revenues and support in excess of expenses after transfers $ 595 $ 125 $ 720 NONOPERATING ACTIVITIES Interest expense (75) (75) Investment return, net Transfers Transfers to operating activities (150) a (150) Transfers from operating activities 500 b Total change in net assets 1, ,610 Net assets at the beginning of the period 1,500 2,100 3,600 Net assets at the end of the period $ 2,540 $ 2,670 $ 5,210 Operating Nonoperating w/o donor restrictions With donor restrictions

15 OPERATING ACTIVITIES Revenue and Support: Fees for services $ 495 Bequests 600 Other contributions 425 Restricted support released 1,375 Revenue and support 2,895 Expenses: Expenses 1,950 Revenues and support in excess of expenses before transfers 945 Transfers Transfers to operating activities 150 a Transfers from operating activities (500) b (350) Revenues and support in excess of expenses after transfers $ 595 c *No longer a requirement to report operating measure on same page as change in net assets without donor restrictions Operating Nonoperating w/o donor restrictions With donor restrictions

16 Without Donor Restrictions With Donor Restrictions Total Revenues and support in excess of expenses after transfers $ 595 c $ $ 595 NONOPERATING ACTIVITIES Contributions 1,500 1,500 Restricted support released (1,375) (1,375) Interest expense (75) (75) Investment return, net Transfers Transfers to operating activities (150) a (150) Transfers from operating activities 500 b Changes in Net Assets 1, ,610 Net assets at the beginning of the period 1,500 2,100 3,600 Net assets at the end of the period $ 2,540 $ 2,670 $ 5,210 Operating Nonoperating w/o donor restrictions With donor restrictions

17 Operating (Charitable and Business) Nonoperating (Investing and Financing) XXX XXX (XXX) XXX Revenues and support in excess of expenses before transfers Transfers to operating activities (Transfers from operating activities) Revenues and support in excess of expenses after transfers XXX Δ in w/o donor restrictions Donor-restricted XXX XXX Δ in w/ donor restrictions Δ in net assets

18 Require Direct Method for operating cash flows No longer require Indirect Method ED to ask if indirect should still be required for certain NFPs Re-categorize certain items to better align operating with activities statement and operating measure Purchases of and proceeds on sale of PP&E Cash gifts restricted for PP&E Cash from interest and dividends Interest paid on long-term debt

19 Cash Flows from Operating Activities Cash received from service recipients Cash received from donors Cash paid to employees Cash paid to vendors Purchase of property and equipment Proceeds on sale of property and equipment Contributions restricted for property and equipment Net cash from operating activities Cash Flows from Investing Activities Cash received from interest and dividends Purchase of investment assets Proceeds from sale of investments Net cash from investing activities Cash Flows from Financing Activities Payments of principal on long-term debt Interest paid on long-term debt Contributions restricted for endowment Net cash from financing activities Net increase in cash Cash at the beginning of year Cash at end of year

20 AICPA ISSUE Who should be required to present a Statement of Functional Expenses? FASB DELIBERATIONS Should natural expenses be required? Should functional expenses still be required? Should both be required together? Which breakout on the Statement of Activities? Should investment/other nonoperating expenses be functionalized?

21 Gross v. net? If net, which expenses netted? If netted expenses disclosed, which expenses included in disclosure? (at issue: fees embedded in funds)

22 How to present? Net presentation of investment expenses against investment return on the face of the statement of activities Netting limited to external and direct internal expenses What to disclose? Disclosure of investment expenses no longer required, except for the disclosure of the amount of internal salaries and benefits that have been netted (if any) against investment return

23 Asset type / debt maturity Donor / other external restrictions and internal limits FASB DISCUSSED Classified balance sheet Separate presentation of assets whose use is limited Additional note disclosure

24 The Board decided that an entity should define the time horizon it uses to manage its liquidity (for example, 30, 60, or 90 days) and disclose the following information: Quantitative information about: The total amount of financial assets Amounts that are not available to meet cash needs within the time horizon because of (1) external limits and (2) internal actions of a governing board The total amount of financial liabilities that are due within that time horizon. Qualitative information about how the entity manages its liquidity. For example, an entity might disclose: Its strategy for addressing entity-wide risks that may affect liquidity, including its use of lines of credit Its policy for establishing liquidity reserves Its basis for determining the time horizon used for managing liquidity.

25 Revised net asset classification To be reflected in net assets with donor restrictions rather than in net assets without donor restrictions Enhanced disclosures In addition to aggregate amounts by which funds are underwater (current GAAP), also disclose aggregate of original gift amounts (or level required by donor or law) for such funds, fair value, and any governing board policy or decision to reduce or not spend from such funds.

26 e.g., endowment/ investment / fair value e.g., accounting policies e.g., cost allocation approaches

27 Required to include a description of the method used to allocate costs among program and support functions Board will refine the definition of and guidance for management and general activities Other: Business-oriented NFP health care entities no longer have to disclose their tax-exempt status in accordance with paragraph

28 Public Meetings: FASB has conducted one of two public meetings the 2 nd is scheduled for October 6, 2015 at the University of Southern California. An audio recording will be available on the FASB website for 30 days after the meeting. Board Exposure Draft Redeliberations: Re-expose the draft, or Issue the final standard Effective Date -???

29 Financial Accounting Standards Board (

30 American Institute of CPAs (AICPA) (

31 Anderson ZurMuehlen & Co., P.C (

32 Thank you! Jacki Frank, CPA, CGMA, Shareholder Phone: Fax: