Implementing ASU 2016-14: Board-Designated Net Assets

By Matt McDonald, CPA/CFF, CFE, Business Assurance & Advisory Services Partner | Not-for-Profit Team

ASU 2016-14: Liquidity and Availability Disclosures

Last fall, Keiter published a three part series on the Presentation of Financial Statements for Not-for-Profit Entities related to the implementation of ASU 2016-14.

Part III of the series discussed the new liquidity and availability disclosures of the standard. In particular, it indicated the need to communicate the “availability of financial assets at the balance sheet date.”

Board Designations

One of the items needing to be disclosed was internal limits imposed by board decisions, which is another way of saying board designations. The Financial Accounting Standards Board considers Board-designated net assets to be net assets with no donor restricts which are subject to self-imposed limits by action of the entity’s governing board.[1] Such items include the following:

• Funds to be held for future programming
• Funds to be held for future capital assets
• Funds to be held as a rainy day or reserve fund
• Funds to be held and treated as a quasi-endowment fund

If the entity has these types of limitations on its funds, the entity needs to consider the disclosure requirements established by the ASU, including: disclosing the purpose of any board designations; the amount of the designation; and the qualitative and quantitative impact these designations have on the overall liquidity of the entity.  By considering the necessary disclosure (which may also include drafting potential footnotes), management and the governing board can evaluate how such designations impact the nonprofit’s “story” pertaining to liquidity. If the story needs to be “edited”, the entity can modify or even remove some or all of its board designations to better tell its story.