Most recently, the Financial Accounting Standards Board (FASB) has tentatively affirmed items regarding financial statements for the proposed FASB Accounting Standards Update, Not-For-Profit Entities, and Health Care Entities. FASB has also approved proceeding with a final standard on leases.
As a member of the FASB Not-for-Profit Resource Group, I am engaged in the discussion of changes that will affect non-profit entities. The following is an overview and the potential impact on non-profit organizations going forward.
FASB has tentatively affirmed the following items:
- Non-profits will not be required to use the direct method of presenting operating cash flows. Non-profits will continue to be allowed to use either the direct method or indirect method.
- FASB affirmed its proposal to combine temporarily and permanently restricted net assets into net assets with donor restrictions and to rename unrestricted net assets “net assets without donor restrictions.” Consistent with the proposed update, this alternative would retain the current Generally Accepted Accounting Principles (GAAP) requirement to provide relevant information about the nature and amounts of donor restrictions on net assets (either on the face of the statement of financial position or in notes.)
- Non-profits will be required to disclose the amounts and purposes of board-designated net assets either on the face of the financial statement or in the notes.
- FASB affirmed its proposal to require the aggregate amount by which endowment funds are underwater be classified within net assets with donor restrictions rather than the current unrestricted category.
- FASB affirmed its proposal for endowment funds that are underwater, if any, to require the disclosure of: the non-profit’s policy to either reduce expenditure or not spend from underwater endowment funds, the aggregate fair value, the aggregate original endowment gift amount or level required by donor stipulations or by law to be maintained, and the aggregate of the amount of the deficiencies.
- FASB affirmed its proposal to require, in the absence of explicit donor instructions, the placed-in-service approach for expirations of restrictions to acquire or construct long-lived assets, thus eliminating the over-time approach.
- The Board also directed staff to explore alternative ways to present quantitative information about liquidity and would require qualitative information how non-profits manage their liquidity and liquidity risks.
FASB Approval of a Final Standard on Leases
FASB has also voted to proceed with a new accounting standard that will require non-profits to include lease obligations on their balance sheet. The final Accounting Standards Update (ASU) is expected to be published in 2016. The upcoming standard will be effective for non-profits (and public companies) for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2018.
Do you have questions regarding these approved and proposed standards? Contact lritter@md-cpas.com to explore the implications for your organization.