The Financial Accounting Standards Board (FASB) is evaluating 263 comment letters, including feedback from AAFCPAs, as part of their invitation to stakeholders for review and input on the proposed Accounting Standards Update (ASU) entitled Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities. As part of its current Technical Plan, the FASB is deliberating these comments, and has separated the project into two phases. Click here to read about the two phases >>
What’s the purpose of the ASU?
The proposed ASU, issued in April 2015, is intended to affect improvements in nonprofit organizations’ financial statements, so that they may reduce the cost and complexity associated with reporting requirements, and better communicate their financial performance and condition to their donors, grantors, creditors, and other stakeholders.
Significant Decisions Made At the Board’s December 2015 Meeting
The proposed ASU would affect substantially all nonprofits as well as creditors, donors, grantors, and others that use their financial statements. AAFCPAs would like to make you aware of the following FASB decisions made:
- To combine temporarily and permanently restricted net assets into “net assets with donor restrictions” and to rename unrestricted net assets “net assets without donor restrictions” and retain the current GAAP requirement to provide relevant information about the nature and amounts of donor restrictions on net assets (either on the face of the statement of financial position or in notes).
- To disclose the amounts and purposes of board-designated net assets either on the face of the financial statements or in the notes.
- Regarding the classification and disclosure of underwater endowments:
a. Reflect the aggregate amount by which endowment funds are underwater within “net assets with donor restrictions” rather than the unrestricted category.
i. The nonprofit’s policy to either reduce expenditures or not spend from underwater endowment funds.
ii. The aggregate fair value.
iii. The aggregate original endowment gift amount or level required by donor stipulations or by law to be maintained.
iv. The aggregate of the amount of the deficiencies.
- In the absence of explicit donor instructions, require the place-in-service approach for expirations of restrictions to acquire or construct long-lived assets, thus eliminating recognizing revenue over time.
- Nonprofits will not be required to use the direct method of presenting operating cash flows, but may instead continue to use either the direct method or indirect method. If the nonprofit chooses to use the direct method, they are no longer required to do an indirect reconciliation.
What Is Next?
The Board will continue its redeliberations of the issues in the first phase at its Board meeting scheduled for February 3, 2016 (minutes are generally available a week later). The agenda indicates that the FASB will focus its discussion on expenses, including (a) expenses by nature and analysis of expenses by function and nature, (b) netting of external and direct internal investment expenses against investment return, (c) disclosure of netted investment expenses, and (d) enhanced disclosures about cost allocations.
It is expected that phase one of the proposed update will be completed and the final ASU, including effective dates, will be issued by mid-2016. The deliberations for phase two of the proposed update are anticipated to begin after the completion of phase one. However as of yet, there is no timeline.
AAFCPAs will continue to follow the Board’s deliberations closely. As always, we will keep you informed and provide further updates as they become available.