Bennett Thrasher Update on Not-for-Profit Financial Reporting Projects
In 2009, the Financial Accounting Standards Board (FASB) established an advisory committee to help with the not for profit (NFP) sector known as the Not-For-Profit Advisory Committee (NAC). The purpose of the NAC is to provide "resources for FASB when obtaining input from the NFP sector on existing guidance, current and proposed technical agenda projects, and longer-term issues affecting those organizations."1
According to the American Institute of Certified Public Accountants (AICPA) Audit Risk Alerts for Not For Profit Entities Industry Developments for 2013, "The primary functions of NAC are as follows:
- Provide focused input and feedback to FASB's board and staff on existing guidance, current and proposed technical agenda projects, and longer-term issues (for example, the alternatives and recommended course for the financial reporting for NFPs if the Securities and Exchange Commission [SEC] mandates IFRSs for public business entities).
- Assist FASB's board and staff in its communication and outreach activities to the NFP sector about recent and other existing guidance, current and proposed projects, and longer-term issues."
An ongoing project to reexamine standards for financial statement presentation for NFPs, focusing on improving the net asset classification requirements as well as improving the information provided in financial statements and their related footnotes regarding financial performance, liquidity and cash flows was to be further discussed at a NAC meeting on September 9 and 10, 2013.
Below is a summary of the Update and Discussion on NFP Financial Reporting Projects of the NAC for the meeting dated September 9 & 10, 2013. The full NAC Meeting Handouts can be obtained from the FASB website at http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176157433339.
- Alternative 1 - This alternative would maintain the same three net asset classes, but allow for clarity in the use of "unrestricted net assets". i.e. "Net Assets without Donor Restrictions, Other Net Assets, etc."
- Alternative 2 - This alternative would combine the two restricted asset classes into a single class for donor restrictions and allow for additional subsets for greater distinctions depending on passage of time, purpose, etc. This alternative suggested that the change either be included on the face of the financial statements or within the footnotes.
- Alternative 3 - This alternative would provide for two classes of net assets, with multiple subclasses that focus on distinguishing availability and use of the components of the net asset classes. i.e. "available for use, non-spendable."
- Alternative 4 - This alternative would use as its distinctions information such as operating/non-operating to identify the net asset classes. This alternative focuses more on "how" the resources are being used.
As a result of the discussions at the May Board meeting, the staff intends to recommend to the Board the following in September:
- Replace the existing requirements to present totals for each of the three classes of net assets with similar requirements two classes of net assets that describe the net assets with donor-imposed restrictions and without donor-imposed restrictions.
- Keep the current requirement of providing information about the nature and amounts of different types of donor-imposed restrictions but modify the requirement to (1) remove the distinction between temporary and permanent restrictions and (2) focus on describing differences in the nature with a focus on both how and when the resources (net assets) can be used.
- Require disclosure of information about designated amounts and their purposes if any portion of net assets without donor-imposed restrictions has been board-designated or otherwise authorized for particular uses.2
While the minutes from the September 9 & 10 meeting have not been posted on the FASB website, it was noted that the NAC expects to issue the Exposure Draft for the proposed Accounting Standards Update for the NFP Financial Reporting: Financial Statements project in the beginning of 2014.
Bennett Thrasher will continue to monitor potential changes and the latest practices within the not-for-profit industry.
For more information on the proposed update to the NFP Financial Reporting: Financial Statements project and other not-for-profit industry questions, please contact Anton Hayward or call 770.396.2200.
1 AICPA Audit Risk Alerts for NFP Entities Industry Development for 2013
2 FASB Update and Discussion on NFP Financial Reporting Projects Not-for-Profit Advisory Committee September 9 and 10, 2013, Attachment #3, Topic 3-2: Net Asset Classification and Related Disclosure