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Proposed Changes to the Nonprofit Financial Statement Model – What You Need

On April 24, 2015, the Financial Accounting Standards Board (FASB) issued the proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954)—Presentation of Financial Statements of Not-for-Profit Entities (proposed Update), for public comment. The proposed Accounting Standards Update is available for review here.

As I recently explained in Accounting Today, the FASB originally initiated this standard setting project as part of its ongoing review of generally accepted accounting principles (GAAP) to ensure that the standards continue to meet the needs of a changing financial reporting environment and the needs of those that rely on the financial statements of a nonprofit. Most of the current reporting guidance was established in 1993, when the Board issued FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations. It has been over twenty years since this original standard was issued with no significant changes to the nonprofit reporting model, and now, this proposed Update aims to refresh the model, but not necessarily overhaul it. It’s important to understand that the proposed update does not change the recognition and measurement of the underlying transactions. Rather, it enhances a nonprofit’s ability to tell its story related to its financial position and financial performance, while at the same time increasing financial comparability across the nonprofit sector and maintaining some level of flexibility.

The primary objectives of the standard-setting project are twofold: 1) improve the net asset classification requirements for nonprofits, and 2) revamp the information provided in financial statements about liquidity, financial performance and cash flows. These project objectives were formulated, in part, as a result of the FASB’s NFP Advisory Committee (NAC) and Project Resource Group members identifying them as areas in need of improvement.

The proposed ASU would substantially affect all nonprofits, as well as creditors, donors, grantors and others that use their financial statements. Those nonprofits typically include charities, NGOs, foundations, private colleges and universities, nonprofit health care providers, cultural and performing art organizations, religious organizations and trade associations, among others.

The proposed update will have a 120-day comment period, which ends on August 20, 2015. During the comment period—and subsequent to the end of the comment period—the FASB Board members and staff will engage in extensive outreach and communications with stakeholders. Those communications will include speeches at conferences and workshops, as well as small group meetings for preparers and users in the Chicago and Dallas areas, and possibly in the Atlanta area, during the June-July period. There will also be public roundtables in Norwalk on September 21, 2015 and on the West Coast (likely in Los Angeles) on October 6, 2015.

Article reprinted from the BDO Nonprofit Standard blog (April 23, 2015). Written by Lee Klumpp. Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com.