Not-for-Profit Financial Statement Exposure Draft
Posted on Wednesday, June 03, 2015
On April 22, 2015 the Financial Accounting Standards Board (FASB) issued an Exposure Draft of the proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958) for public comment. The comment period ends August 20, 2015. The effective date and whether the changes would be effective for all nonprofits has yet to be determined by the FASB. Most of the current reporting guidance for nonprofits was established in 1993 when the FASB issued Statement No. 117, Financial Statements of Not-for-Profit Organizations.
The proposed changes are focused on improving the following items of a nonprofit organization’s financial statements.
1. Complexity and understandability of net asset classifications.
2. Inconsistent reporting of intermediate measures of operations in the statement of activities.
3. Lack of consistency in the type of information provided about expenses of a period.
4. Misunderstandings about, and opportunities to enhance, the utility of the statement of cash flows.
The FASB is hoping that the changes might better communicate a nonprofit organization’s financial performance to the users of the financial statements.
Below is a summary of the proposed changes compared to the current requirements.
Net Asset Classifications
- Three classifications of net assets (unrestricted, temporarily restricted, permanently restricted).
- Underwater endowment amounts reported as unrestricted net assets.
- Two classifications of net assets (without donor restrictions, with donor restrictions).
- Underwater endowment amounts reported as net assets with donor restrictions, with enhanced disclosure.
Statement of Activities
- Net change of three classes of net assets and of total net assets presented.
- Net change of two classes of net assets and of total net assets presented.
- Two measures of operating activities (before and after internal transfers) presented, both within changes in net assets without donor restrictions.
- Expenses presented by function, nature or both with enhanced note disclosures if both are not on the face of the statement.
- Investment return presented net of related investment expenses.
- Net amount for operating cash flows using the indirect method presented, with additional presentation of the direct method permitted.
- Net amount for operating cash flows using the direct method presented, with additional presentation of the indirect method permitted but not required.
- Certain items reclassified among cash flow categories (operating, investing and financing).
- Enhanced disclosures.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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