A significant part of the new FASB guidance is additional and revised disclosures to be made as part of financial statements. These changes are mostly centered around how liquid your organization’s assets are and how easily you’ll be able to meet cash needs for expenses coming up in the next year. Since a few of these disclosures are closely related, I’ll run through a group of them in this post.
Include qualitative and quantitative information about the availability of cash and other financial assets to cover cash needs for general expenses in the coming year. This disclosure can be on the face of the balance sheet and/or in the notes to the financial statements. Give information such as:
- The total amount of financial assets
- The amount of financial liabilities due in the next year
- The amount of cash on hand that is not available for general expenses because it is restricted by a donor or designated by your governing board for a specific purpose or time frame
Also disclose information about how your organization manages liquidity and available cash. Include:
- Your policy for establishing and maintaining cash reserves
- Organizational risks that may affect your liquidity, such as using lines of credit
- The time horizon you use for managing liquidity, and the rationale for determining the appropriate time horizon
Related to these liquidity disclosures, include details about assets that are restricted by donors or set aside by the board or other self-imposed restrictions. In both cases, provide the dollar amount, the purpose the assets are designated for, and any other impact on how the assets can be used.