4 Steps to Create Exceptional Liquidity Disclosures
Although financial professionals serving not-for-profit organizations still have time to prepare for implementation of the Financial Accounting Standards Board’s (FASB’s) new not-for-profit financial reporting standard, it’s important to consider and discuss the impacts of the new guidance with board members.
In June, we published a blog post answering common questions related to implementing the new liquidity disclosures required under the recently-issued not-for-profit financial reporting standard. This post discusses steps for making that implementation process smooth and effective.
The new standard requires not-for-profits to provide both qualitative and quantitative information about liquidity and availability of resources as follows:
- Qualitative information that communicates how the not-for-profit manages its available liquid resources to meet cash needs for general expenditures within one year of the balance sheet date.
- Quantitative information that communicates the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date. The availability of a financial asset may be affected by its nature; external limits imposed by donors, laws and contracts with others; and internal limits imposed by governing boards.
When contemplating these disclosure requirements, not-for-profits should consider the following steps:
- Determine the message you want to convey to your stakeholders.
Does your organization have ample resources to fund activities over the next 12 months? If so, you may want to make that clear in the disclosure. On the other hand, perhaps your organization struggles to maintain sufficient resources to meet general expenditures. In that situation, you will want to make your related action plan clear. Some not-for-profits have significant capital projects that may have resources set aside to fund them. In those cases, consider discussing those resources and the anticipated timing of their use.
- Review your current procedures around board designation of net assets.
With the standard’s emphasis on board-designated net assets, organizations may wish to review and document their procedures for designating net assets, perhaps even creating a board designations policy if one does not already exist. It also may be a good time to revisit existing board designations to determine if they still make sense.
- Decide on the best presentation approach for your organization.
The guidance requires an organization to provide information about the availability of financial assets at the balance sheet date to meet cash needs for general expenditures within one year; however, there is no prescribed presentation for that information. The standard provides a few example disclosures, but they may not resonate with every not-for-profit. The Not-for-Profit Section offers example disclosures. Independent auditors may also have samples you can use as a starting point.
- Evaluate whether any changes to accounting and reporting systems will be necessary in order to easily capture information for disclosures.
Once you have determined how you want to present the required information, you’ll need to assess your supporting systems and technology to determine whether any changes or additions will be required to easily capture the information you wish to disclose.
No matter the size or complexity of your organization, consider starting the discussion now to prepare for implementation of the new liquidity and availability disclosures. Being proactive will boost efficiency internally and help to ensure your disclosures provide meaningful information to your financial statement users.
FASB’s new not-for-profit financial reporting standard is effective for annual financial statements issued for fiscal years beginning after December 15, 2017 and for interim periods within fiscal years beginning after December 15, 2018. Visit aicpa.org/nfp to learn more.
Karen Craig, CPA. Karen is a consultant providing technical accounting, reporting, finance and analytical expertise to not-for-profits with a focus on higher education. She volunteers on the AICPA Not-for-Profit Advisory Council and is an ex-officio member of the AICPA Not-for-Profit Industry Expert Panel. Karen also is a technical advisor to the Accounting Principles Council of the National Association of College and University Business Officers (NACUBO).
Don’t Be a One-Hit Wonder
Safety in shrimp
The first time I heard What’s Up? by 4 Non Blondes, I was elbow-deep in a bucket of raw shrimp. It was a month before I started high school, and I’d been slaving away all summer fileting fish and peeling shrimp in the sweltering kitchen of a local seaside crab shack. It was a thankless job that left my hands both stinging and stinking.
And I loved it.
There was safety in it, I was good at it, and people left me alone – likely because I spent most of my days covered in mullet guts. Regardless, it was just me, my work, and a tiny portable radio that sat atop a nearby refrigerator, softly coughing out Top 40 drivel. But then, it happened. From amid all the pop fluff arose the anti-pop voice of Linda Perry, the 4 Non Blondes frontwoman. She seamlessly went back and forth from a deep, brooding register to an eerily pleasing meadowlark warble.
But whatever happened to 4 Non Blondes?
Though What’s Up? made it to the top of the charts, subsequent singles like Spaceman couldn’t gain traction. The band’s fame shone brightly…and fizzled quickly.
Like so many one-hit wonders, 4 Non Blondes were able to produce value that spoke to people at a very specific moment in time – a too specific, fleeting moment in time. They had a sometimes bluesy, often grungy, usually gloomy sound, yet they entered the arena when Grunge Rock was in decline and listeners were pivoting from gloom to gloss. It was a shaky, transitional period, and the band couldn’t find its sea legs.
Each of us can learn from one-hit wonders, whether you prefer 4 Non Blondes or Vanilla Ice, Right Said Fred or Los Del Rio. The lesson? Attune yourself to the various forces changing the world around you and adapt.
The pace of change
Adapting may sound easier than it is, though, given the pace at which the world is changing. Take, for instance, the smartphone. It took merely 10 years for 40 percent of Americans to adopt this technology; by contrast, its primitive forebear, the telephone, took four times longer to reach the same adoption level. Perhaps more importantly, the technologies themselves are advancing at exponential rates. In less than a year, for example, some autonomous vehicles being tested reduced their reliance on human intervention by 1664%. Meanwhile, AI and robotics are busy automating basic tasks across multiple industries and in various professions.
Automation has even impacted my own vocation. Writing robots have been publishing earnings reports and sports recaps for years, and I’m okay with that. I see technology as untethering people from that which can be automated, as liberating people to add even greater value to the businesses, people and societies they serve. The caveat, of course, is that people must rise to the occasion.
But how might one rise? For those in any profession, lifelong learning proves increasingly essential, especially considering the exponential pace of change I’ve mentioned. According to A New Culture of Learning by John Seely and Douglas Thomas, half the new skills you learn today will be obsolete in five years. Idling’s a risk.
Be more human
Some of the statistics I’ve presented may seem daunting, but if you want to harness technology (instead of allowing technology to harness you), simply view your primary objective as this: be more human.
A recent study claims that AI may soon pass the Turing Test but not for the reasons you may think. AI hasn’t reached a level of human sophistication; rather, people have become less capable at recognizing what makes us human. Today, we communicate more artificially, in acronyms and emojis. We’re buried in our work, our smart phones and our social media – so much so that we’re less astute at meaningful, face-to-face interactions with our own species. We’re less able to identify subtle, uniquely human nuances. To counter this, we’ll have to think more analytically, lead more creatively and make more valued, valuable judgments. We’ll have to upskill, specialize, and become experts at things that cannot be easily automated. We’ll have to roll up our sleeves, get our hands dirty, and wallow in all the clichés that, again, make us undeniably human.
Don’t be a one-hit wonder.
To get where we need to be, we must move quickly. Technology’s not waiting for us play catch-up. We mustn’t get too comfortable doing what we’ve always done. That would make us a sort of one-hit wonder. Cutting fish was no longer cutting it for me, and 4 Non Blondes frontwoman, Linda Perry, adapted and forged ahead as well. She became a Grammy Award-winning lyricist. Her words have risen time and again to the top of the pop charts, in a sense allowing her to find a place in the genre where her former band failed to eke out space. In 2015, she was inducted into the Songwriters Hall of Fame.
So how will you adapt? How will you stay ahead? What’s your plan? There’s a hall of fame waiting for you, too.
Brock Faucette, Corporate Communications Manager, Association of International Certified Professional Accountants
Concert courtesy of Shutterstock
Tax Reform and Fairness – A Necessary Balance
We are fast approaching what many believe is crunch time for tax reform. There is a renewed push by the White House and Congress to enact tax reform by year’s end. President Trump is urging Congress to “move fast,” while the House and Senate work to identify a process to make it possible.
As the debate intensifies, policy goals will be fleshed out, trial balloons will be floated in the media, and key lawmakers will get down to business in assembling a package of reforms to the tax code that can pass muster in both chambers.
A mainstay of the tax reform discussions is a call for cuts in the corporate tax rate. Since the vast majority of U.S. businesses operate as pass-through businesses, tax reform plans have also applied the benefits of lower tax rates to certain pass-throughs. These pass-throughs, including S corporations and partnerships, don’t pay taxes themselves, but pass their earnings through to their owners who pay taxes at their individual rates.
Some in Washington have suggested that professional services pass-throughs – such as accounting firms – should not be treated like other businesses because of the mistaken belief they don’t help drive the economy. We know that’s not the case.
Accounting firms play an important role in the nation’s economic growth and job creation. In fact, the U.S. Bureau of Labor Statistics (BLS) reports for 2014 that there were more than 1.3 million accountants and auditors employed in the United States. BLS also forecasts that employment of accountants and auditors is projected to grow 11 percent through 2024, with 142,000 more jobs, faster than the average for all occupations. In 2016, payroll for CPA firms totaled nearly $40 billion, according to the BLS.
Fairness should also be a consideration in how Congress addresses tax treatment of service companies. It makes no sense to distinguish pass-through businesses and partnerships – such as accounting firms – from companies in other sectors merely because of the business’s choice of entity. This is a simplistic approach that does not reflect that in today’s economy, professional service pass-through firms require significant investment in tangible and intangible assets as they compete in the global environment. By unfairly disadvantaging professional service pass-throughs, the incentive to start or grow a business is diminished, with a corresponding loss of jobs and reduction in wages.
In testimony before the U.S. Senate Finance Committee on September 19, the AICPA stressed that “professional service firms are an important sector in our economy and heavily contribute to the nation’s goals of creating jobs and better wages.”
As part of our advocacy for sound tax policy, the AICPA several years ago developed a framework of guiding principles of good tax policy. Topping that list is the principle of equity and fairness, which states that similarly situated taxpayers should be taxed similarly. We often reiterate the view that equity and fairness is an essential attribute of a good tax system, recommending that equity and fairness be given due consideration in both the making and administration of tax laws.
In the final analysis, and in the interest of fairness, the nation’s accounting firms should be treated no differently than any other job and wage generator.
It is a common refrain in our nation’s capital that tax reform is needed now more than ever. Yes, that is true. And it has been for some time. But let's be certain that fairness remains a central theme in how we go about it.
Barry C. Melancon, CPA, CGMA, President and CEO, American Institute of CPAs.
8 Reasons to Get Excited About Fall
Now that I’m almost done drying my tears because summer is over (but I’m keeping a few tissues handy just in case), I’m ready to make a confession: I secretly love fall. Anyone who has met me for more than 10 minutes knows I never miss an opportunity to crow about how summer is the perfect season and how anyone who doesn’t like the beach is hardwired wrong. So I kind of feel like a fraud admitting I really like fall. But there’s just something about it that makes me nostalgic.
Here are eight reasons why fall really is fabulous.
- Apple picking and cider donuts
The annual family apple picking trips of my youth are magical in my memories—tractor rides into the orchard, farm stands, the discovery of the world’s greatest cider donuts (no really, I’ve never had a better one). The mere thought of it all gets me wistful. Taking my son for the first time (okay, the second time—the first time he was a month old) brought me great joy. This year we introduced our daughter to the apple picking tradition.2. Pumpkin picking
If you have kids (or a social media account) you know that in 5, 4, 3, 2, 1 your feed will soon be full of people’s kids and grandkids and friends awash in a sea of orange orbs. And who can blame them? A pumpkin patch is one of the most photo-friendly backdrops around. Not to mention, picking your pumpkin straight off the vine (or from a makeshift pumpkin patch) beats fishing it out of a cardboard bin at the grocery store.
3. Fall decorations are economical
Hang up a pumpkin wreath on September 22 and don’t take it down until November 30. Same goes for decorative pumpkins, gourds, corn stalks and more.
4. Make the most of the great outdoors
Depending upon where you live, temperatures are usually a little more conducive to spending time outdoors. Whether this means you can count on cool air for a hike or the dissipation of the jungle-like heat of summer, everyone is a bit less sticky.
5. It’s the Great Pumpkin, Charlie Brown
Oh Linus, your belief in the Great Pumpkin never disappoints. This classic TV special always gets me in the mood for Halloween.
6. Soups, stews and casseroles
As soon as the temperature drops, hearty meals jump back into my cooking repertoire. Stews are a huge hit in my house—my husband calls this Irish Beef Stew “favorite dinner” and this Portuguese Pork Stew “second favorite dinner”. They make great leftovers, as you can cook a big pot of them and freeze portions for easy weeknight meals. Delish.
I love Halloween. I once threw a Harry Potter-themed party that involved covering my living room walls with black industrial plastic table cloth, steaming labels off of bottles and labelling them various potions and creating a candy station with Bertie Bott’s Every Flavor Beans and what have you. Now that I have kids, my party throwing days are on hold, but dreaming up costumes and taking them trick-or-treating with their cousins makes me feel like a kid again. Plus, I get to steal my son’s Halloween candy afterwards. What? He’s only 3—he doesn’t need all of that candy!
Once upon a time, I loved professional football. Then the NFL RedZone channel was invented and I couldn’t keep up. So now I root for our two local teams* to win so I can get $1 coffee at Dunkin’ Donuts the following day (Check your area for variations on this promotion, available to DD Perks members). But for millions of Americans Fall means football—Pop Warner, college, NFL, Fantasy, touch with a Nerf football on the front lawn. The ways to participate are endless.
*With the way the New York Giants and the New York Jets are playing, I don’t expect to get too many $1 coffees this season.
What are your favorite fall traditions? Tell us in the comments section.
5 Tips for Powerful Financial Storytelling
Public speaking is hard, there’s no doubt about it. You need to prepare your speech, carefully choosing your words and crafting your story. Then, you need to devote some serious time practicing-- some say up to one hour for every minute of your speech! Finally, you need to fight the butterflies in your stomach to step in front of the crowd, steady your voice, and give your speech.
When it comes to public speaking, accountants face more challenges than the average person. Not only do they need to do all of the above, they also need to translate complex data into easy-to-understand concepts for non-finance professionals.
Financial storytelling takes a lot of work, but it’s a learnable skill. The following are tips from the CGMA research brief, “Six Rules to Delivering a Powerful Financial Presentation.”
Know your audience. Your first step when developing a presentation is to find out what’s most important to your audience. Then, lead with that piece of information. It will instantly capture their attention and make it easier to keep them engaged throughout the rest of the speech. Manoj Vasudevan, the 2017 Toastmasters International world champion of public speaking, suggests identifying what you can teach your audience, and cutting anything that can appear self-serving or repetitive. “Your speech is not about your ego; it’s about your message,” he told Business Insider. “Make sure that message is worth listening to.”
Nobody’s perfect. Not even champion speakers—and especially not the members of your audience. Don’t fear making mistakes or suffering technical difficulties. Most audience members won’t notice mistakes, but they will notice if you get tripped up by them. When something goes wrong, don’t panic. Take a deep breath, pause, regain your composure, and carry on. And, resist the urge to apologize to your audience – hat only draws more attention to the blooper.
Tell a story. Storytelling is so effective because it provides context to the figures you’re presenting to help make them relatable. A speech is like a conversation--you want to wrap your facts in emotion so your listeners understand why what you’re saying is important. Your job isn’t to read the balance sheet, it’s to offer broader context to the figures and bring a financial story to life.
Use pictures to enhance the data. Use bold, bright, and high-contrast photos to help set the tone for your presentation. Or use props for an unexpected twist. Instead of displaying multiple figures on a large graph, consider data visualization charts and tools. They’ll help your audience quickly identify major trends or anomalies without getting distracted by trying to read a busy slide. (You can always send spreadsheets as a follow up to your presentation!) The CGMA report, “5 Rules of Effective Data Visualisation” can help you generate ideas.
Simplify. You worked hard to master the vernacular of accounting. Unfortunately, it might as well be a foreign language to your audience. Warren Buffett has said that he writes financial reports like he’s talking to his sisters. “I have no trouble picturing them: though highly intelligent, they are not experts in accounting or finance. They will understand plain English, but jargon may puzzle them.”
It may take a while until you nail the perfect financial presentation. Until then, try to improve upon one aspect at a time, and practice, practice, practice!
For more details and case studies, download the entire report.
Chrissy Jones, MBA, Manager--Communications and Member Engagement, Association of International Certified Professional Accountants
Microphone courtesy of Shutterstock