April 2015

FASB Proposes an Overhaul of the Nonprofit Financial Reporting Standards 

On April 22, 2015 The Nonprofit Advisory Committee, a committee established by the Financial Accounting Standards Board (FASB), released an exposure draft that proposes major changes to nonprofit financial reporting.  Substantially all nonprofits are affected, including public charities, foundations, health care organizations, and colleges and universities. 

The proposed standards seek to improve four major issues raised by nonprofit stakeholders:

  1. Confusion about the three classes of net assets based on the existence or absence of donor-imposed restrictions.

  2. Inconsistent reporting of operating results in the statement of activities.

  3. Lack of consistency about the type of information provided about expenses, especially the nature of expenses.

  4. Misunderstanding and lack of usability of the indirect method for reporting the statement of cash flows.

The following is a brief summary of the changes:

Net asset classification

  • Two classifications- without donor restrictions and with donor restrictions will replace the current three classifications (unrestricted, temporarily and permanently restricted)

Statement of activities

  • Two classes of net assets will be presented

  • Present two measures of operating activities

  • Present expenses both by their function and nature 

  Cash flows

  • Operating cash flows to be presented using the direct method

  • Certain cash flow items will be reclassified to improve alignment with the statement of activities
The comment period for the exposure draft is expected to run through July 31st and the Accounting Standards Update will likely be issued by the end of 2015 or early 2016.  The effective date is yet to be determined.  

For more information, please visit the FASB website at FASB.org
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