NonProfit Alert
Technical Update: FASB On The Move
Significant Proposed Changes from FASB to Presentation of
Financial Statements for Not-for-Profits
April 28, 2015
By Denise Moritz
In our March 24, 2015 Alert we mentioned that
significant proposed changes to the not-for-profit
industry were coming. They have now arrived! On April
22, 2015, the Financial Accounting Standards Board
(FASB) issued a proposed Accounting Standards Update
(ASU) - Not-for-Profit Entities (Topic 958) and Health
Care Entities (Topic 954) Presentation of Financial
Statements of Not-for-Profit Entities.
In a 4/22/15 News Release, FASB member, Lawrence W.
Smith, states “The proposed ASU contains
recommended enhancements to the fundamental
reporting model for not-for-profit organizations—a
model that has existed for more than 20 years. We
believe that these changes will refresh the model in
ways that will make not-for-profit financial statements
even more useful to donors, lenders, and other users...”
Consistent with the changes that the FASB has been
communicating over the past several months, the
proposed ASU sets forth the FASB’s proposed
improvements to the Net Asset Classifications,
Statement of Activities, Statement of Cash Flows and
enhanced disclosure about an organization’s liquidity.
1
Specifically, they propose:
1) Changes in the statement of activities to help
users better understand “operating results” by
a new way of viewing operating activities
versus non-operating activities. These changes
will better reflect financial performance in the
statement of activities by presenting two
measures of operating performance: (a) the
operating excess (deficit) before transfers
to/from operations and (b) operating excess
(deficit) after transfers. Board designations,
appropriations, and similar transfers to/from
operations and to/from nonoperating activities,
are presented separately on the statement of
activities.
2) Two additional subtotals will be required to be
presented on the face of the statement of
activities related to the changes in net assets
without donor restrictions, for 1) (a) and 1) (b)
above.
2
3)
The net asset classification will be revised to
two classifications from three (net assets
without donor restrictions vs. net assets with
donor restrictions).
4)
Changes in the notes to help financial
statement users better assess a not-for-profit’s
liquidity and how it is being managed.
5)
All operating expenses will be required to be
reported by both function and nature and
investment return be reported net of related
expenses, to enable a more comparable and
useful presentation.
6)
Changes to the statement of cash flows are
intended to make it more understandable by
(a) presenting cash flows provided by operating
activities using the direct method of reporting,
rather than the indirect (reconciliation) method,
and (b) classifying cash flows in ways that are
more consistent with classifications in the
statement of activities. The following specific
changes are being proposed: (a) classify as
operating cash flows (rather than as investing
cash flows) those cash flows resulting from (1)
purchases of long-lived assets, (2) contributions
restricted to acquire long-lived assets, and (3)
sales of long-lived assets; (b) classify as
financing cash flows (rather than as operating
cash flows) those cash flows resulting from
payments of interest on borrowings, including
cash management activities; and (c) classify as
investing cash flows (rather than as operating
cash flows) those cash flows resulting from
receipts of interest and dividends on loans and
investments other than those made for
programmatic purposes.
7) Changes to how property, plant, and
equipment is placed into operation. The
proposed amendments suggest a “placed-inservice approach” for reporting expirations of
restrictions on gifts of cash or other assets to be
used to acquire or construct a long-lived asset,
thus eliminating the option to release the
donor-imposed restriction over the estimated
useful life of the acquired asset.
8) Enhanced disclosures, both quantitative and
qualitative, in particular for underwater
endowment funds, which are donor-restricted
endowment funds for which the fair value of
the fund at the reporting date is less than either
the original gift amount or the amount required
to be maintained by the donor or by law that
extends donor restrictions.
9) Report investment income net of external and
direct internal investment expenses.
Additionally, certain items are being suggested to be
reported separately from operations, such as a change
in the way goodwill is impaired, and equity transfers,
among others. Many of these changes will not only be
reflected within the financial statements, but in
accompanying footnotes, which will require more
detailed explanatory information.
The FASB is conducting a Webcast on Tuesday, May 12,
2015 1:30-3:10 p.m. EDT to discuss these proposed
amendments. See the FASB website www.fasb.org for
details.
Stakeholders are encouraged to review and comment
on the proposed ASU, by August 20, 2015.
We will continue to keep you informed of the latest
developments as this situation unfolds over the
upcoming months. We will also issue a more In-depth
analysis of the proposed changes in the near future.
Stay tuned!
For more information contact:
Denise Moritz, CPA
Senior Manager
646.225.5913
Denise.Moritz@WeiserMazars.com
Visit us on www.weisermazars.com
Disclaimer of Liability
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services,
investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax,
accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with
all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose
of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness,
accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability,
and fitness for a particular purpose.
WeiserMazars LLP is an independent member firm of Mazars Group.
CONFIDENTIALITY NOTICE: The information contained in this communication may be privileged, confidential and protected from use and disclosure. If you are not the
intended recipient, or responsible for delivering this message to the intended recipient, you are hereby notified that any review, disclosure, distribution or copying of this
communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately by replying to the message and deleting it
from your computer. Thank you for your cooperation. WeiserMazars LLP
3