April 1st, 2015 by Associate
Financial statements of not-for-profit organizations are about to get a lot more useful, at least according to the Financial Accounting Standards Board (FASB). Early this month, a 5-2 vote by FASB determined that a proposed Accounting Standards Update (ASU) would be issued in an attempt to enhance the usefulness of not-for-profit financial statements. The proposed changes would take aim at the existing net asset classification scheme, reducing the number of net assets categories by combining temporarily-restricted and permanently-restricted net assets into a single classification, net assets with donor-imposed restrictions. The proposed changes would also require all not-for-profits to report expenses by both their nature and function.
The ASU ultimately issued is expected to reduce costs, promote simplification and provide additional benefits to the not-for-profit community. There is concern amongst some, however, that the changes will actually increase complexity at a higher level. FASB Chairman Russell Golden, who argued that a more “holistic” approach should been taken in the matter, has voiced concerns about the fact that some of the issues expected to be addressed by the proposal are not specific to not-for-profits but will nonetheless be addressed only within the not-for-profit arena.
Once a draft of the proposed ASU is agreed upon, an Exposure Draft is expected to be issued by mid-April, the comment period for which will remain open through July 31, 2015. A summary of the FASB project can be found here.
Stay tuned for further updates.