Proposed FASB Changes: What Nonprofit Leaders Need to Know
Published on by Patrick Frambes in Not-for-Profit
On April 22, 2015, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update intended to improve the information provided in nonprofit financial statements and notes to financial statements.
The changes are regarded as improvements to the FASB’s current net asset classification and information presented in financial statements and notes to financial statements about a nonprofit organization’s liquidity, financial performance, and cash flows. More specifically, proposed changes from the Committee for nonprofits include:
- Requiring all NFPs to report expenses by either function or nature in either a separate statement, on the statement of activities, or within the notes of the financial statements
- Changing how investment expenses are presented in the financial statements and notes
- Presenting net assets based on donor restrictions and no donor restrictions instead of the three classes of net assets which are currently unrestricted, temporarily restricted, and permanently restricted
- Along with the change in net assets, there would be the changes in underwater endowments. Underwater endowments would be presented as donor restricted and include additional information in the footnotes about board policy, original gift amount, and the fair value.
- Requiring the direct method of cash flows instead of the more commonly used indirect method. The reconciliation of net assets to operation cash flows would be removed as a result of the direct method being used. There are also proposed changes related to the donor restricted cash gifts, cash payments to purchase fixed assets, and interest expense paid on the statement of cash flows.
- Disclosure of how the NFP manages its liquidity. It would include both qualitative and quantitative information.
- Purchases of fixed assets from donor restricted funds will be released from restriction when it is placed in service instead of over the asset’s useful life.
If you have any questions or concerns as to how these proposed changes may affect you or your organization, reach out to a Barnes Dennig representative for clarification of the proposed changes.
About the Financial Not-for-Profit Advisory Committee (NAC)
The Not-for-Profit Advisory Committee (NAC), established in 2009, is a standing committee that works closely with the FASB in an advisory capacity to ensure that perspectives from the not-for-profit (NFP) sector are effectively communicated to the FASB on a timely basis in connection with the development of financial accounting and reporting standards. The principal responsibilities of the NAC are to provide focused input and feedback relating the NFP sector and to assist the FASB and its staff with communication and outreach activities to the NFP sector on recent standards and other existing guidance, current and proposed projects, and longer-term issues. Click here to learn more about the Not-for-Profit Advisory Committee from the FASB website,
