On April 22, 2015, the Financial Accounting Standards Board (FASB) issued a 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. The proposed ASU is intended to improve existing standards for financial statements presented by not-for-profit (NFP) organizations and provide better information to donors, creditors and other users of financial statements. This is the most significant change in reporting guidance for NFP organizations since Statements 116 and 117 were issued in 1993.
In general, changes being proposed by FASB include the following:
- Change the current net asset classification from three classes (unrestricted, temporarily restricted and permanently restricted) to two classes (net assets with donor restrictions and net assets without donor restrictions);
- Require enhanced disclosures concerning quantitative and qualitative information about the organization’s liquidity including how liquidity is managed by the organization;
- Present two measures (subtotals) of operating activities on the statement of activities – 1) before and 2) after internal transfers resulting from board designations, appropriations and similar actions that place or remove self-imposed limits on the use of resources;
- Require all NFP organizations to report operating expenses by both nature and function on the statement of activities, as a separate statement, or in the notes to the financial statements as well as enhanced disclosures about the methods used to allocate costs among functions;
- Present investment income net of related investment expenses; and
- Require the direct method of reporting on the statement of cash flows and change the classification of certain cash flows among operating, financing and investing activities.
FASB is currently accepting comments through August 20, 2015. For more information on the proposed ASU, visit FASB’s website.
We will continue to monitor the progress of the proposed ASU and will keep you apprised of how these changes will impact your organization.