Not-for-profit
The NFP Reporting Rules
ASU 2016-14 sets the mechanics: a functional expense analysis for every NFP, the liquidity disclosure, and netted investment return.
How the exam words it
- -The stem asks which disclosure is 'a NEW disclosure requirement added by ASU 2016-14'.
- -It asks 'which NFPs are required to present expenses by both function and nature', or names the two functional categories.
- -It computes 'financial assets available for general expenditure within one year'.
- -An endowment is underwater and it asks which disclosures are required, or how investment return is presented.
The playbook
- 1Every NFP presents an analysis of expenses by function and nature (in a statement, schedule, or notes), split between program services and supporting activities.
- 2The liquidity disclosure counts financial assets available within one year, excluding both donor-restricted amounts and board-designated amounts.
- 3Investment return is reported net of external and direct internal investment expenses.
- 4Underwater endowments disclose fair value, original gift amount, the deficiency, and the spending policy, and the deficiency stays within net assets with donor restrictions.
The trap
Counting board-designated reserves as available for general expenditure. They are technically without donor restrictions, but the board has set them aside, so the liquidity disclosure excludes them.
How the exam varies it
The same pattern, re-skinned along these axes:
Which requirement: functional analysis, liquidity, investment return, or underwater endowmentsClassification rule versus disclosure detail versus a computationWhat is required versus what is merely permitted
Drill this pattern
8 questions of The NFP Reporting Rules from across the AUD topics. Clear it by getting 5 right with a streak of 3.