The Financial Accounting Standards Board, or FASB, met on October 28, 2015 to discuss feedback received on the April 2015 proposed Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities. The FASB has received hundreds of responses to their proposed ASU impacting not-for-profit financial reporting, including several responses providing criticism and offering alternative suggestions. FinREC, the American Institute of Certified Public Accountants’ (AICPA) Financial Reporting Executive Committee, supported the FASB’s intentions to improve financial reporting and disclosures for not-for-profits, but also expressed concern for changes that would lead to further divergence between the financial reporting models of not-for-profits and for-profit businesses.
Because of the responses received, the FASB divided its re-deliberations of the proposed ASU into two work streams.
The first work stream, which is more likely to make it into the final ASU, would be to finalize aspects of the ASU that are not dependent on other projects and are improvements the FASB could finalize in the near term. Highlights include:
- Net asset classification scheme, including:
- Changing from three classifications (unrestricted, temporarily restricted, and permanently restricted) to two classifications (with donor restrictions and without donor restrictions)
- Disclosure of board-designated funds
- Underwater endowments
- Placed-in-service option for expirations of capital restrictions
- Expenses, including:
- Expenses by nature and function
- Netting of external and direct internal investment expenses against investment return
- Disclosure of netted investment expenses
- Enhanced disclosures about cost allocations
- Improving disclosures of information useful in assessing liquidity.
- Statement of cash flows, not requiring the direct method, but if used the indirect method reconciliation is no longer needed.
The second work stream, which is more likely to be delayed or revised prior to making it into a final ASU, would be to reconsider changes that are likely to require more time to resolve because of the criticism and alternative suggestions made by stakeholders. Highlights include:
- Operating measures including:
- Whether to require intermediate measures at all
- Whether and how to define such measures
- Alternative disaggregation approaches suggested by stakeholders
- Statement of cash flow realignment of certain line items.
Look for the FASB to issue a final not-for-profit financial reporting accounting standard update sometime in the first or second quarter of 2016.