Working with the Cash Basis or Modified Cash Basis Under ASU 2016-14

May 3, 2019

FASB ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, applies to financial statements prepared in accordance with GAAP. Do the new standards apply to your NFP if it uses the cash basis or modified cash basis of accounting? The short answer is “yes,” but read further to find out what concessions are available.

The importance of the reporting attributes in GAAP to a special purpose framework such as the cash basis or modified cash basis is a matter of professional judgment.

To avoid cash basis or modified cash basis statements being mistaken for GAAP financial statements, different titles are used for them. Descriptive titles, such as “Statement of Assets, Liabilities, and Net Assets—[Modified] Cash Basis” and “Statement of Revenues, Expenses, and Other Changes in Net Assets—[Modified] Cash Basis,” are often used. Within the statements, line-item captions can be the same as those found in GAAP statements unless their use would be misleading. Some accountants, however, prefer to use different captions for subtotals, such as "excess of revenue collected over expenses paid" instead of “change in net assets.”

An organization using the cash basis or modified cash basis of accounting would use the two classes of net assets—net assets with donor restrictions and net assets without donor restrictions—in its financial statements. However, instead of formatting the statements in the typical fashion, the organization might choose to present a statement of assets, liabilities, and net assets—[modified] cash basis that reports only total net assets and a related statement of revenues, expenses, and other changes in net assets—[modified] cash basis that reports only the change in total net assets. If it did so, a note to the financial statements would be required to provide information about the two classes of net assets and significant changes in them, using estimated or actual amounts or percentages, and describing the major types of donor-imposed restrictions on those balances.

When financial statements prepared on the cash basis or modified cash basis contain items that are the same as, or similar to, those in financial statements prepared in accordance with GAAP, informative disclosures similar to those required by GAAP are necessary to achieve fair presentation. Therefore, the disclosures required by ASU No. 2016-14 would be included in cash basis or modified cash basis financial statements unless the item itself is not present.

In addition, the financial statements should include all informative disclosures that are appropriate for a special-purpose framework, including the following:

  • A description of the special purpose framework, including a summary of significant accounting policies
  • A description of how the framework differs from GAAP, the effects of which need not be quantified.
  • Any additional disclosures that may be necessary for the special purpose financial statements to achieve fair presentation.

The following table presents the applicability of changes from ASU No. 2016-14 to financial statements presented on the cash basis or modified cash basis.

Description of Change from ASU No. 2016-14

Applicability and Concessions

A complete set of financial statements

FASB ASC 958-205-45-4

This applies, but if a statement of cash flows would largely duplicate the Statement of Revenues and Expenses—[Modified] Cash Basis, preparation of the statement of cash flows would serve little purpose and would not be required. As the extent and significance of an organization’s modifications to the cash basis increases, so does the importance of presenting a Statement of Cash Flows—Modified Cash Basis because of users’ needs for information about transactions that would be reported as investing or financing cash flows in that statement.

Two classes of net assets:

•    Net assets with donor restrictions

•    Net assets without donor restrictions

FASB ASC 958-210-45-1, 958-220-45-1

It applies, but the financial statements could report only total net assets and changes in total net assets, and notes could provide information about the two classes.

Nature of different types of donor-imposed restrictions on net assets

FASB ASC 958-210-50-3

It applies.

Limitations imposed by the governing board on net assets

FASB ASC 958-210-50-3

It applies.

Expenses by both functional and natural classifications

FASB ASC 958-720-45-15

It applies.

Disclosure of allocation methods

FASB ASC 958-720-50-1

It applies.

Liquidity disclosures

FASB ASC 958-210-50-1, 958-210-50-1A

It applies.

Classification of underwater endowment funds

FASB ASC 958-205-45-13H

It applies.

Disclosures about underwater endowment funds

FASB ASC 958-205-50-1B, 958-205-50-2

It applies.

Investment expenses netted against investment revenue

FASB ASC 958-220-45-14 to 45-16

It applies.

Release of restrictions on capital assets or resources to acquire capital assets

FASB ASC 958-205-45-12

It applies.