- Describe the qualitative and quantitative parts of the liquidity disclosure
- Identify the limits that reduce the availability of financial assets
- Build an availability table for general expenditures within one year
- Test the disclosure against the balance sheet, restrictions and board actions
What the codification requires
ASU 2016-14 added ASC 958-210-50-1A. An NFP must disclose:
- Qualitative information in the notes that communicates how it manages its liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date.
- Quantitative information, on the face of the statement of financial position or in the notes, plus more qualitative information if needed, that communicates the availability of its financial assets at the balance sheet date to meet cash needs for general expenditures within one year.
Three things affect availability: the nature of the asset, external limits imposed by donors, laws and contracts with others, and internal limits imposed by governing board decisions.
ASC 958-210-50-2 adds that the notes disclose, if applicable, unusual circumstances such as special borrowing arrangements, requirements that cash be held in separate accounts and known significant liquidity problems; failure to maintain cash to comply with donor restrictions; and significant limits from contracts, including loan covenants.
What counts as "general expenditures"
General expenditures are the costs of running the NFP that are not already covered by restricted resources. A gift restricted to next year's operations can be available for general expenditures next year. A gift restricted to a capital project is not. The disclosure is about financial assets: cash, receivables, investments. Prepaid expenses, inventory and property are not financial assets and stay out of the table.
Building the table
A common format starts with total financial assets at year end and subtracts amounts not available within one year:
- Financial assets at year end
- Less: amounts not available because of their nature (for example, receivables due after one year)
- Less: donor restrictions that prevent use for general expenditures within one year (endowment corpus, capital campaign gifts, purpose restrictions not expected to be met)
- Plus: endowment appropriations expected for next year's spending, if the board's spending policy makes them available
- Less: board designations that limit use, with a note if the board can release them
- Equals: financial assets available for general expenditures within one year
The qualitative note then explains the policy, for example a target of a set number of months of operating expenses in liquid assets and any line of credit available.
How auditors test it
- Tie the starting point. Total financial assets must agree to the balance sheet.
- Tie the restrictions. Amounts excluded for donor restrictions should agree to the net asset composition note. A restricted gift excluded from availability that is fully spent by year end is an error.
- Check receivables. Pledges due beyond one year come out. Grants receivable for reimbursement of current costs can stay in.
- Read board minutes. Board designations are internal limits. If the board can undo them, many NFPs disclose that fact. Make sure the table matches the actual vote.
- Covenants. Read debt agreements for minimum liquidity or restricted cash, and check they are disclosed under ASC 958-210-50-2.
- Consistency with going concern. If available assets cover only a few weeks of expenses, the going concern evaluation should reflect it. The going concern liquidity worksheet uses the same inputs.
Presentation choices
The quantitative information can sit on the face of the statement of financial position or in the notes. A table in the notes shows each limit separately. Whichever format the client uses, the amounts must reconcile to the balance sheet and the restriction notes, and the qualitative text must describe the actual policy rather than a target the board never adopted.
A frequent finding is a table that subtracts all net assets with donor restrictions, including amounts restricted only for next year's operations. Those are available within one year for general expenditures and should not be excluded. The reverse error, leaving in endowment corpus, overstates liquidity.
Availability table at Mesa Youth Services, June 30, 2026
Mesa Youth Services reports these financial assets at June 30, 2026:
- Cash: $1,200,000
- Pledges receivable: $700,000 ($450,000 due within one year, $250,000 due later)
- Investments: $3,100,000, of which $2,500,000 is a donor-restricted endowment (corpus $2,000,000 plus $500,000 unappropriated gains)
Other facts: $300,000 of cash is a gift restricted to building a gym. $200,000 of the current pledges are restricted to fiscal 2027 general operations. The board appropriated $110,000 from the endowment for fiscal 2027 spending. The board designated $400,000 of investments as an operating reserve it can release by vote.
Table:
- Total financial assets: $1,200,000 + $700,000 + $3,100,000 = $5,000,000
- Less pledges due after one year: ($250,000)
- Less gym gift: ($300,000)
- Less endowment: ($2,500,000)
- Plus fiscal 2027 appropriation: $110,000
- Less board-designated reserve: ($400,000)
- Available within one year: $1,660,000
The $200,000 restricted to fiscal 2027 operations stays in, because it can be used for general expenditures within one year. Management's draft had subtracted it, understating availability by $200,000. The note also discloses that the $400,000 reserve can be released by the board.
Self-check
Answer each question before you open the answer.
What three factors does ASC 958-210-50-1A list as affecting availability of a financial asset?
Show answer
Its nature; external limits imposed by donors, laws and contracts with others; and internal limits imposed by governing board decisions.
Should prepaid insurance appear in the availability table?
Show answer
No. The quantitative disclosure covers financial assets. Prepaid expenses are not financial assets.
A gift is restricted to general operations in the fiscal year that begins the day after the balance sheet date. Is it excluded from availability?
Show answer
No. It can be used for general expenditures within one year, so it remains in the available amount.
Where must the quantitative information appear?
Show answer
On the face of the statement of financial position or in the notes, with additional qualitative information in the notes as necessary.
Use it on the file
- ToolNonprofit Operating Reserve Calculator: Months of Expenses Covered
- TemplateGoing Concern Liquidity and Conditions Worksheet (ASC 205-40)
- GuideGoing Concern Assessment: AU-C 570 and ASC 205-40 for Private Companies
Sources
Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error