Progress is being made on the biggest proposed changes to nonprofit reporting in 20 years. The public comments received through August 20, 2015 have been reviewed and public roundtable discussions were held in California and Connecticut in September and October. The FASB Board met on October 28, 2015 to discuss the feedback received and determine the next steps to take.
Overall, the public comments (of which there were more than 300) ranged from general support to outright disagreement with the myriad new provisions. Because of this, the Board has decided to separate its re-deliberations into two workstreams. Workstream #1 includes those provisions that have general support and, as such, may be finalized in the near term, and workstream #2 includes those provisions which will require more extensive consideration and/or modification.
The following summarizes the significant outcomes of the October Board meeting:
Summary of Significant Provisions Which May Be Finalized in the Near Term
The Board is planning to begin re-deliberations on these provisions at the Board meeting tentatively scheduled for December 11, 2015.
Changes to net assets presentation and disclosure:
- Net asset classification–would require two classes of net assets be presented in the statement of financial position instead of the current three classes. These would be net assets with donor restrictions and net assets without donor restrictions.
- Enhanced disclosure of board-designated funds–would require entities to expand information provided about the nature and amounts of different types of governing board designations.
- Underwater endowments–amounts would be classified in net assets with donor restrictions. It would also require disclosure of the aggregate amount by which funds are underwater, the original gift amount, and any Board decisions to spend or not spend from such funds.
- Require the “placed-in-service” approach for reporting expirations of restrictions on gifts of cash or other assets to be used to acquire or construct a long-lived asset; eliminates the option to release the donor restriction over the life of the asset.
Changes to the statement of activities:
- Require all nonprofit organizations to present expenses both by nature and function, either in the statement of activities, a separate statement or in the footnotes to the financial statements.
- Report investment income net of external and direct internal investment expenses and include additional disclosure in the footnotes.
Operating measures: Enhanced disclosures about cost allocations and operating measures.
Cash Flow Statement: Require the direct method of presenting cash flows from operating activities and make presentation under the indirect method optional.
Summary of Significant Provisions Which Will Require More Reconsideration or Consideration of Alternatives
- All other proposed changes to operating measures, including whether to require intermediate measures.
- Review alternative operating measure disaggregation approaches suggested by stakeholders.
- Realignment of certain items in the statement of cash flows.
Background on the Nonprofit Reporting Project:
The FASB began this project in response to requests from stakeholders to improve information being provided to users of nonprofit financial statements. While it is believed that current reporting is sound, several issues were noted, including complexities and confusion related to net asset reporting, inconsistencies in reporting of expenses and intermediate measures of operations, and misunderstandings about the cash flow statement.
As a result, the FASB issued an exposure draft on April 22, 2015 which attempts to address and resolve the issues identified. The provisions would revamp virtually all aspects of a nonprofit’s financial statements from the statement of financial position to the footnotes. This draft was issued following a majority (but not unanimous) vote of the Board.
Additional details and updates can be found on the
FASB website: www.fasb.org.
—Linda Shupack, CPA