By Kevin Peters
In April, the Financial Accounting Standards Board (FASB) issued proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities.
The proposed standards would represent the most significant changes in nonprofit reporting in over 20 years. The proposed changes would, per the FASB, better serve the needs of financial statement users.
Some key points of the proposed changes include:
All nonprofits would be required to report expenses by both nature and function. Under current standards, only voluntary health and welfare organizations are required to report a statement of functional expenses. The proposal would allow an option to present either on the face of the statement of activities, as a separate statement or in the notes.
Nonprofits would be required to present two intermediate operating measures as defined on the basis of two key dimensions: a mission dimension and availability dimension.
The current three net asset classifications (permanently restricted, temporarily restricted and unrestricted) would be modified to only two: net assets with donor restrictions and net assets without donor restrictions.
Cash flow statements would be required to be presented using the direct method. Also, certain cash flows would be classified differently.
Investment income would be reported net of external and direct internal investment expenses.
Enhanced disclosures about several areas including,
- Governing board designations, appropriations and similar transfers that result in the addition or removal of self-imposed limits on the use of resources without donor-imposed restrictions.
- Underwater endowment funds: a nonprofit would be required to disclose the aggregate of the original gift amounts for such funds and any governing board policies or decisions to spend or not spend from such funds. A nonprofit would also classify the amount by which the endowment is underwater in net assets with donor restrictions rather than in the current unrestricted net asset category.
Comments on the proposal can be made until August 20 via the FASB website.
Implementation dates and whether early adoption would be allowed will be determined by the FASB at a later date.