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Statement of Cash Flow Considerations for Nonprofits Implementing the New Financial Statement Presentation Framework

AAFCPAs advises nonprofits in assessing the impact of the new Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, and we provide guidance throughout the transition process. The new financial statement framework affects nonprofit organizations in all industries (i.e. healthcare, affordable housing, social services, foundations, and education) and is effective for fiscal years beginning after December 15, 2017 (CY 2018 or FY 2019).

Statement of Cash Flow

“AAFCPAs advises nonprofits to determine a method to best present their operating cash flow (direct method vs. indirect method) to the report users(i.e. donors, grantors, lenders, customers, or others).”ASU 2016-14 allows nonprofits to continue presenting the operating cash flows in the statement of cash flow using either the direct method or the indirect method. If the nonprofit chooses to present the operating cash flows using the direct method, it is no longer required to provide a reconciliation of change in net assets to net cash flow from operating activities (the reconciliation). For-profit entities do not have this option.

All entities other than nonprofits are still required to provide the reconciliation of net income to net cash flow from operating activities if the direct method is used.

Generally, report users believe the direct method of presenting operating cash flow provides more understandable and comparable information than the indirect method. ASU 2016-14 eliminates the requirement of the reconciliation under the direct method and as a result, will reduce the time involved for nonprofits if they wish to switch to reporting operating cash flow using the direct method. 

During implementation, AAFCPAs advises nonprofits to determine the method that best presents their operating cash flow (direct method vs. indirect method) to report users (i.e. donors, grantors, lenders, customers, or others). Accordingly, nonprofits should also consider if the different cash flow reporting requirements between nonprofit and for-profit entities will have any significant impact on consolidated financial statements.

Related Insights

AAFCPAs advises nonprofits in assessing the impact of the new standards, and provides guidance throughout the transition process. In addition, we advise clients on reviewing and updating accounting policies and procedures to reflect any changes, including solutions for processing information and producing financial reporting in line with the new reporting standard. Learn more. >>

If you have any additional questions about how the new ASU will impact you, please contact Matt Hutt, CPA, CGMA, at 774.512.4043, mhutt@nullaafcpa.com; Hui-Ting Grady, CPA, at 774.512.4106, hgrady@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Hui-Ting Grady
Hui-Ting has extensive experience providing assurance solutions to diverse nonprofit organizations, including: affordable housing development projects with HUD requirements, multi-service human & social services providers, and behavioral health agencies. She delivers audits in accordance with Uniform Guidance/Single Audit and Government Auditing Standards, as well as Uniform Financial Report (UFR) and other funding source regulations. Hui-Ting is a member of AAF’s Accounting and Assurance (A&A) Committee, and Revenue Recognition Task Force. She is dedicated to keeping the firm and clients apprised of regulatory changes and new pronouncements in a proactive and timely manner, as well as providing best practice recommendations for efficient and effective implementations of new accounting standards.
Matthew Hutt CPA
Matt leads AAFCPAs’ Healthcare Division, providing assurance, tax and advisory solutions for Federally Qualified Health Centers (FQHCs), behavioral health providers, home care agencies and hospices, nursing homes, and senior care living centers. Matt advises healthcare providers on consolidation and coordination of care, including the integration of behavioral health into the primary care delivery system. He also provides consulting solutions for providers transitioning to new value-based reimbursement models, and data driven patient care, including: developing business process and controls for collecting and advantaging data to provide analysis on: provider activity, delivery of care, and analysis of efficiency & cost effectiveness. Matt is also highly-sought after for his knowledge on issues related to affordable housing developers with requirements related to the US Department of Housing and Urban Development, MassHousing, Low Income Housing Tax Credits, Historical Tax Credits and New Markets Tax Credits.