Restricted Assets: Managing Donor Restrictions, Financial Reporting, and Liquidity Disclosures

Description

Contributions are sometimes made as a result of a specific fundraising campaign and given for a specific restricted purpose. Contributions may also have conditions stipulated by the donor. Some non-cash contributions may be inherently riskier. Turning down a contribution goes against the grain for most NFPs, but the alternative could be a multitude of insignificant restricted gifts on the books that are difficult to track or spend. Once received, these restricted funds may be at risk to be "borrowed" before spent on the donor restricted purpose by NFPs to meet current operating costs.

Contributions with multiple restrictions increase the complexity for tax advisers. For example, building fund contributions with both time and purpose restrictions could be received and spent but remain restricted assets until construction of the facility is complete. FASB's ASU 2016-14 reduced the number of net asset classes from three to two in the financial statement presentation: net assets with donor restrictions and net assets without donor restrictions.

Financial statement reporting changed to comply with ASU 2016-14 and there are also new liquidity disclosures. The format of the statement of activities and statement of financial position has evolved to incorporate these updates. The new liquidity disclosures include qualitative and quantitative details about the internal limits placed by the board and external limits set by donors, grantors, and other outsiders.

Most notable of all restricted assets are endowment funds. Its disclosures now include reporting accumulated losses as amounts "underwater." The purpose of these ASU changes is to promote transparency, but they also create additional challenges for NFPs and practitioners working with NFPs.

Listen as our panel of experts explains best practices for soliciting and freeing-up donations with strings attached and restricted asset reporting under ASU 2016-14, including financial statement presentation and endowment fund disclosures.