Nonprofit organizations must provide transparency around liquidity to inform stakeholders of their ability to meet obligations. FASB ASC 958-210-50 requires nonprofits to disclose information about liquid resources and financial assets available for general expenditures within one year. This article examines the disclosure options allowed under GAAP and highlights best practices for presenting this information effectively.
Why Are Disclosures Required?
Donors, grantors, and stakeholders need to understand a nonprofit’s financial capacity to meet short-term obligations. GAAP allows flexibiliemains essential.
Types of Required Disclosures
Qualitative Disclosures: Descriptions of policies and management of liquid resources, including examplety in how organizations meet these requirements, but clear disclosure of liquidity rs like board-designated funds or cash equivalents covering expected cash needs.
- Quantitative Disclosures: Information on the availability of financial assets at the statement of financial position date, adjusted for internal and external restrictions.
- Additional Requirements: Disclose known liquidity issues, restrictions on cash, and limitations due to contractual agreements, such as loan covenants.
How to Disclose
Nonprofits may use one of several methods:
- Table Method: Reconciles total financial assets to amounts available for general expenditures.
- Narrative Discussion: Explains liquidity and availability in the notes.
- Classified Statement of Financial Position: Combines some liquidity information in the statement with additional notes.
Best Practices
- Clearly separate qualitative and quantitative information.
- Include adjustments for donor restrictions, board designations, and liquidity limitations.
- Maintain consistency across annual reports to enhance transparency and comparability.
Most Common Practices
Review of 2025 financial statements shows that the table reconciliation method in notes is the most frequently used, though narrative discussions are also acceptable. Classified statements of financial position are less common.
