The Financial Accounting Standards Board (FASB), the organization that sets accounting standards, is in the process of evaluating the current accounting and reporting requirements for not-for-profit organizations. FASB expects to issue an exposure draft with proposed changes to the existing required presentation of net assets and cash flows and current disclosures related to liquidity and financial performance in early 2015.
FASB typically releases new accounting standards in draft form and solicits feedback on them during a comment period before issuing the standard in final form. Once new rules are finalized, a transition period and implementation guidance is typically provided to help organizations adopt them.
FASB has tentatively decided to require net assets be separated into two classes, net assets with donor imposed restrictions and net assets that are free from donor restrictions. There is also an expected shift away from reporting net assets with restrictions as either permanently or temporarily restricted to focusing on how and when the net assets may be used by the organization.
Not-for-profit organizations would be required to present an intermediate measure of operations differentiating revenue, support and other funding that directly results from carrying out its mission from resources that do not. Resources would also be segregated based on their availability for use in current operations. Investment returns would be presented net of related investment expenses.
Expenses would be reported by their nature and function with a required added analysis of the expenses and how they are broken down. Organizations would also need to provide additional detail of how costs are allocated among program and support functions.
Organizations would be required to apply the direct method of reporting cash flows and can expect enhanced financial statement disclosures surrounding their liquidity and any endowments that they hold that are underwater.
Please use the submission form below to contact us with any questions you have regarding existing not-for-profit reporting requirements as well as the expected changes.
[authorblurb name=”Eric Maneval” image=”8858″ url=”/about/leadership-team/eric-b-maneval/” text=”is an Accounting and Assurance Senior Manager at BeachFleischman PC. He has planned and managed numerous audits and reviews of health care, not-for-profit, and manufacturing organizations.”]