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FASB Exposure Draft on Change to Presentation of Financial Statements for Not-For-Profits

By Ron Ries and Denise Moritz

This is a follow-up to our earlier Alert on this topic which has already been the focus of much attention and the source of so much commentary, positive and negative, directed at the FASB.

WeiserMazars has submitted a Comment Letter on this exposure draft.  No doubt, based on the volume of response from both the not-for-profit industry and the accounting profession, the exposure draft will continue to be discussed, reviewed and additional changes considered.

Based on the existing proposal, we have summarized the major changes to our readers’ financial statements in the unlikely event there is no revision to the current document.  This overview is being presented to give you a basic understanding of the key provisions so that you also have an opportunity to comment on them. Even though the comment period ended on August 20, 2015, on numerous occasions the FASB has indicated they will continue to accept feedback on their proposals.  Our comment letter to the FASB, as well as all others, are posted on the FASB’s website and are included in the public record.

The most significant proposed changes are as follows:

Net Asset Classification

The net asset classification will be revised from three to two classifications: net assets without donor restrictions and net assets with donor restrictions. (see Diagram A)

diagram a

Liquidity and Financial Availability

The use of more explicit notes to the financial statements is being suggested to help make the nature and degree of liquidity and fiscal strength more visible. (see Diagram B)

diagram b

Financial Performance: Operating vs. Non-Operating Measurement

These items will be better described in the statement of activities in addition to the use of management transfers of funds, so as to better justify operations before and after such transfers. (see Diagram C)

diagram c

Change to the Statement of Cash Flows

FASB proposes to require the Direct method for reporting operating cash flows, rather than the traditional Indirect method and recategorize certain items to better align operating cash flows with operating measures. (see Diagram D)

daigram 4

Suggested Use of Functional Allocation of Expense

This would be a change to all not-for-profit financial statements presentations and could be as a separate statement accompanying the statement of activities or as a separate statement but part of the financial statement package. (see Diagram E)

diagram e

Stay tuned for further information – there will be much dialogue on these issues throughout the industry over the next several months.