By Jennifer Cryder, CFO and vice president – operations
As we at the PICPA work to conclude our annual audit process, I’ve already begun to turn my attention toward future audits. I am thinking now about what the new not-for-profit standard – ASU 2016-14 Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities – will mean for the PICPA. Because the standard is effective for fiscal years beginning after Dec. 15, 2017, we will be implementing this standard for our fiscal year beginning May 1, 2018. But we present comparative financial statements, and as such we will have to consider any changes beginning with the fiscal year we’re currently in.
More than any other aspects of the standard, we’ve focused our time on a careful evaluation of cost allocations. While we have always presented subtotals of expenses by program and supporting categories in a footnote, we will likely move to the inclusion of a full statement of functional expenses. The new standard, combined with some major operational shifts in how we deploy our internal resources, has made this an opportune time to take a close look at the assumptions behind our cost allocations. Early in this fiscal year, we plan to update the time studies that evaluate how each team member spends his or her time among our programs. We are not an organization with any requirement to maintain detailed timesheets; therefore, we ask each team to regularly assess the dispersion of their efforts. These time studies are summarized and allocation percentages are derived. As our business evolves more dynamically, I expect that we’ll need to build into our financial reporting systems the agility to modify these allocation percentages more frequently. As an added benefit to this exercise, I’ve noticed a shift in thinking among our leadership team. Whereas only direct costs may have been considered before in decision making, the indirect costs are now also being considered.
At this time, the PICPA does not report any board designations of unrestricted funds. As we move forward with implementation of this new standard, we will have to remain alert to capture and report any board designations that arise. In the past, the board has discussed topics such as “setting aside long-term reserves” and “designating funds for investment in” various projects. In the past, we never passed board resolutions that would cause reporting of these amounts as board-designated funds. Going forward, we’ll likely have to clarify the board’s intention in such conversations, being sure to report as “board-designated” those amounts that the board truly wants segregated from other net assets without donor restriction.
Finally, we will need to draft a liquidity footnote as required by the new standard. While the PICPA does not have any unusual accounts or investments, the simple act of drafting a footnote to explain our approach to liquidity and our evaluation of any risks related to liquidity really forces a thoughtful evaluation of these things. To be honest, we handle cash management as part of our everyday operations, but never before have we committed our philosophy to paper. While I do not expect that drafting the footnote will change any of our decision making, the FASB does provide us with an interesting thought exercise.
Have you started to implement this standard? What’s the approach you plan to take? Let us know in the comments section below or on PICPA Connect.