FASB Not-for-Profit Project: Statement of Activities and Functional Expenses

Posted on Wednesday, January 13, 2016

The Financial Accounting and Standards Board (FASB) has an ongoing review of the GAAP (generally accepted accounting principles) standards to ensure that they continue to meet the needs of the changing financial reporting environment.  While existing standards are sound, FASB feels that they could be improved to provide better information to donors, creditors and other uses of financial statements, resulting in FASB’s not-for-profit financial statement project. 

In April 2015, FASB issued an exposure draft of proposed changes to nonprofit financial statements with a comment period ending August 20, 2015.  While the AICPA (American Institute of Certified Public Accountants) agrees with some of the proposed changes, it has given alternatives for others. 

The proposed changes will affect the statement of financial position, activities, functional expenses and cash flows.  This is the second of three blog posts that will discuss the proposed changes to the statements along with the AICPA’s recommendations.

Below is a summary of the current requirements under GAAP, the proposed changes made by FASB with expected benefits and whether the AICPA agrees with the proposed changes.

The AICPA supports an intermediate measure of operations but disagrees with the operations proposed.  It also agrees that expenses should be presented by both function and nature for certain nonprofits but all nonprofits.  Finally, the AICPA supports presenting investment return net of expenses but does not believe disclosing all investment expenses is necessary.  

Again, the AICPA does not agree that all nonprofits should be required to disclose expenses by both natural classification and function.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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