FASB to Redeliberate on New Not-for-Profit Financial Reporting Standard and Split Into Two Phases
The Financial Accounting Standards Board (FASB) recently released an update on the April 2015 proposed Accounting Standards Update, Not-for-Profit Entities and Health Care Entities: Presentation of Financial Statements of Not-for-Profit Entities on October 30, 2015 outlining their plan for redeliberations on the standard, after receiving significant feedback from the nonprofit community. Last week BPM hosted a seminar as part of its Nonprofit Education Series, specifically on this proposed standard and described a lot of the feedback and ideas received by the FASB. "As we indicated in our presentation a few days ago, it was apparent with 264 comment letters and significant feedback at their public roundtable meetings, the FASB would likely defer portions of their proposed standard for further review," said Nathan Farris, a Senior Manager in BPM's Nonprofit Services Group.
The first phase of redeliberations will focus primarily on portions of the proposal that received general consensus, such as reducing three net asset classes down to two, requiring functional with natural expense reporting and related disclosures, enhancing disclosures around operating measures for those that optionally present one, improving liquidity disclosures, and enhancing ways to present operating cash flows.
The second phase will focus on proposal items that received significant impact and will require more time and consideration, such as:
- Operating Measure – The FASB will evaluate whether it is more beneficial to require a measure of operations for all nonprofits, how to best define an operating measure, if required, and explore some alternative approaches suggested. The nonprofit community expressed significant concerns with the FASB’s draft proposal of an operating measure, including the fact that a two-step operating measure that includes board-designated transfer activities would be subject to manipulation, the accounting for capital-like transactions was too complicated, and the variety of types of nonprofits makes it tough to narrowly define an operating measure that can be consistent and relevant. Suggestions included providing additional examples of different types of operating measures, removing board-designated transfers from the statement of activities and into a statement of changes in net assets, and simplifying capital-like transactions to be nonoperating activities.
- Statement of Cash Flows – The initial proposal reorganized certain line items in the statement of cash flows to be more in line with the proposed operating measure. Changes included capital-like transactions being classified as operating cash flows, interest income being classified as investing cash flows, and interest expense being classified as financing cash flows. The FASB received feedback on the impact of moving such items and how it will be diverging from all other reporting entities. The nonprofit community generally agrees that more consistency with the statement of activities presentation and a better way to use the statement of cash flows for readers of financial statements is a good thing.
To read the full FASB project update, go to the FASB Action Alert.
For further details on the specifics of the FASB's original proposal, go to our article on the New Not-for-Profit Financial Reporting Model.