---
title: "Liquidity Disclosures 101 for Nonprofits"
id: "9989"
type: "post"
slug: "liquidity-disclosures-101-for-nonprofits"
published_at: "2018-05-07T00:00:00+00:00"
modified_at: "2026-03-15T02:53:35+00:00"
url: "https://associationsnow.com/2018/05/07/liquidity-disclosures-101-for-nonprofits/"
markdown_url: "https://associationsnow.com/2018/05/07/liquidity-disclosures-101-for-nonprofits.md"
excerpt: "Right now, the talk among financial professionals in the nonprofit and association community is all about the Financial Accounting Standards Board’s Accounting Standards Update (ASU) 2016-14 (opens in a new tab) [PDF], Presentation of Financial Statements of Not-for-Profit Entities. The..."
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---

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Right now, the talk among financial professionals in the nonprofit and association community is all about the Financial Accounting Standards Board’s [Accounting Standards Update (ASU) 2016-14 (opens in a new tab)](http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168381847&acceptedDisclaimer=true)
 [PDF]*, Presentation of Financial Statements of Not-for-Profit Entities*.

The standard, is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and many nonprofits are immersed in understanding the changes and working to implement these new requirements.

Many aspects of a nonprofit’s financial statements and footnotes are changing, including expanded liquidity disclosures that provide:

- detailed information on how a nonprofit manages its liquidity to meet short-term demands for cash
- the types of resources used, such as cash, investments, and receivables
- an explanation of how these resources are allocated in carrying out the nonprofit’s mission and tax-exempt purpose.

So, what is changing in the financial statements regarding liquidity?

Currently, nonprofits do not need to disclose amounts and restrictions affecting their liquid resources. With this new standard, nonprofits are now required to disclose qualitative and quantitative information regarding the management, liquidity, and availability of their financial assets.

> Nonprofits must disclose qualitative and quantitative information regarding the management, liquidity, and availability of their financial assets.

Qualitative disclosures include how the nonprofit manages its liquid resources to meet its general expenditure cash needs within one year of the balance sheet date. Quantitative disclosures include the availability of financial assets at the balance sheet date to meet those needs.

### Qualitative Disclosure Requirements

ASC 958-210-50-2 requires a nonprofit to disclose the following, if applicable, in the notes to the financial statements:

- unusual circumstances, such as special borrowing arrangements, requirements imposed by resource providers that cash be held in separate accounts, and known significant liquidity problems
- the fact that the nonprofit has not maintained appropriate amounts of cash and cash equivalents to comply with donor-imposed restrictions
- information about significant limits resulting from contractual agreements with suppliers, creditors, and others, including the existence of loan covenants

ASC 958-20-50-3 requires a nonprofit also disclose the following in the notes to the financial statements, if not disclosed on the balance sheet:

- a description of the kind of asset whose use is limited
- information about the nature and amount of limitations on the use of cash and cash equivalents
- contractual limitations on the use of particular assets
- information on the nature and amounts of different types of restrictions that affect how and when, if ever, the resources (net assets) can be used
- information about additional limitations placed on net assets, such as information about the amounts and purposes of board designations of net assets without donor restrictions

The amount of information included in the qualitative disclosures in the notes depends on whether the information is required and/or included on the face of the balance sheet.

### Quantitative Disclosure Presentation

Quantitative information may be presented on the face of the balance sheet or in the notes to the financial statements. It can be presented in a tabular or narrative format showing the nonprofit’s financial assets available to meet operating expenditures within one year of the date of the balance sheet.

### Measuring the Availability of Financial Assets

The new standard identifies three factors that could affect the availability of financial assets. Nonprofit should carefully evaluate whether its assets are affected by these factors. The following table provides the factors and examples of potentially affected financial assets.

| Factor | Affected Financial Assets |
| --- | --- |
| Nature | Contributions receivable over 12 months Accounts receivable Illiquid investments |
| External limits imposed by donors, grantors, laws, and contracts with others | Perpetually restricted endowment financial assets Donor-imposed programmatic restrictions Trust and life income funds Contracts with legal restrictions |
| Internal limits imposed by governing board decision | Board-designated net assets Quasi-endowments |

### Checklist for the New Liquidity Disclosures

What can nonprofits do to prepare for the expanded liquidity disclosure requirements? Consider taking the following steps this year:

- Establish a formal liquidity management policy.
- Compile a list of internal and external restrictions on the availability of financial assets to assist in preparing the disclosures.
- Determine which format will be used to present the quantitative disclosures.
- Begin drafting the required note disclosures described above and work with your auditor to ensure you are meeting the requirements.

When presenting comparative financial statements, a nonprofit is required to present the liquidity disclosures for the current year only in the year ASU 2016-14 is adopted. The disclosure will be required for all periods presented in subsequent years.

[Amisha Patel](https://associationsnow.com/author/amisha-patel/)

Amisha Patel, CPA, is an audit principal at Johnson Lambert, LLP

[More articles by this author](https://associationsnow.com/author/amisha-patel/)

Tags: [#Accounting](https://associationsnow.com/tag/accounting/)
 [#Financial Issues](https://associationsnow.com/tag/financial-issues/)
 [#Financial Reporting](https://associationsnow.com/tag/financial-reporting/)
 [#liquidity](https://associationsnow.com/tag/liquidity/)
 [#nonprofit](https://associationsnow.com/tag/nonprofit/)

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