The Financial Accounting Standards Board (FASB) at its March 4, 2015 Board meeting approved the issuance of an Exposure Draft of a Proposed Accounting Standards Update (ASU), in the very near future, representing significant changes in standards that have applied to the not-for-profit industry since 1993. At that time, the FASB issued Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, and Statement of Financial Accounting Standards No. 117, Financial Statements of Not-For-Profit Organizations.
Since the issuance of these standards, both accountants and not-for-profit organizations have suggested changes to further improve not-for-profit accounting. Some of these have already been initiated to make not-for-profit financial statements more “user friendly” and understandable, both to those in the financial community and, more importantly, to donors, Board members and other third parties.
The forthcoming proposed amendments to the existing standards are expected to include changes in: asset classification (Unrestricted vs Restricted), financial performance, cash flows, and other areas that FASB believes will improve and enhance the utilization of the financial statements. In addition, FASB is also suggesting changes within the statement of activities to help users to better understand “operating results.” Certain items are being suggested to be reported separately from operations, such as a write-off of goodwill, equity transfers, and acquisition and disposition of certain non-capitalized assets. Many of these changes will not only be reflected within the financial statements, but also in accompanying footnotes, which will require more detailed explanatory information.
Given recent changes to Form 990, the tax information return filed annually by not-for-profit organizations, some have jokingly suggested that we are moving toward a similar situation to the Form 10-K applicable to the commercial public market sector. Moreover, since not-for-profits are “public” in spirit – not publicly owned, but publicly financed – why shouldn’t reporting be as transparent as possible?
The FASB proposal is due to be issued in mid-April, with an expected comment period through the end of July. FASB will not propose either an expected effective date for adoption or implementation time frame, but will determine what the most appropriate effective date should be based on the feedback received from constituents through comment letters, and through the deliberation process of the proposed ASU. During this period, the industry will have the opportunity to consider the proposal, and determine if such changes will be operational and sufficient to meet the needs of the industry. Will the changes add or remove value? Will they enhance transparency or add complexity? Will the proposed standard achieve FASB’s mission to “establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports?”
There is already an indication of dissatisfaction with the draft proposal among FASB members and certain other bodies within the accounting profession, such as the American Institute of CPAs, as well as certain state CPA societies and other industry watchdogs. However, it is premature to form a fair opinion. We patiently await the day that the Proposed ASU is exposed for comment; then the fun will begin – feedback from constituents will be gathered for the Board to consider, and finally deliberations will start. We will continue to keep you informed of the latest developments as this situation unfolds over the upcoming months.
 Facts about FASB