ASU 2016-14, Presentation of Financial Statements for Non-Profit Entities, went into effect for year ends December 31, 2018, and later. One of the changes brought about by this standard was the required liquidity disclosure in the financial statements. As a result, nonprofit organizations should consider updating or creating a liquidity policy.
The policy should address how the organization manages its liquidity needs or, in other terms, the cash needs of the organization. How does the organization meet cash needs for general expenditures? The organization should set goals for liquid assets, such as maintaining enough liquid assets to cover a certain number of monthly expenses. Liquid assets include items such as cash, receivables and investments. Other items used to manage liquidity could be board designated reserves, endowments, investments and lines of credit. The methods and plan will vary based on the activities, size and complexity of the organization.
Please contact Yeo & Yeo if you have questions.