NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
1. Two Net Asset Classes on the
Statement of Financial Position
a. Without donor restrictions
b. With donor restrictions
c. Total each net asset class
d. Total net assets would remain a
requirement
NACUBO Thoughts and Questions
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An acceptable change
o Although preparers understand current
TRNA net asset class, several user
groups have difficulty
o Department of Education (ED) doesn’t
understand “expendable nature” of
TRNA, especially after 117-1.
o Accreditors and lending users want to
understand relationship between TRNA
and spendable and liquid nature of “net
assets”
NACUBO advocates for an additional
disclosure if an NFP has a perpetual
restriction in the “With Donor Restrictions”
net asset class
o The “Expendable” portion should be
disclosed – essentially what is not
permanently restricted.
o Financial statement users: Department
of Education (ED), lenders, accreditors,
analysts (e.g. rating agencies) would
easily know what is expendable –
important for primary reserve ratio –
impacts ED financial responsibility
formula and ratios used for debt
covenants
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Institution’s thoughts/
observations/feedback

NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
2. Changes to underwater endowment
accounting and reporting – underwater
amounts can flow through the “with
donor restrictions” net asset class
Required to disclose:
1. The governing board’s
interpretation of the law including
its interpretation on the ability to
spend from underwater
endowments.
2. A description of the policy, if any,
to either reduce expenditure or not
spend from underwater endowment
funds and if the policy was
followed.
3. In the aggregate for all underwater
funds:
a) The fair value of underwater
funds
b) The original endowment gift or
level required to by donor
stipulation of by laws that
extend donor restrictions
c) The aggregate amount of
deficiencies of each of the
underwater endowment funds
(a-b)
NACUBO Thoughts and Questions
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This change makes sense
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With large market declines, smaller NFPs
can end up with large negative changes in
UNA or negative UNA balances
o Misunderstood by financial statement
users
o Implication is that the “reporting entity”
owes the endowment fund and must cut
back to repay the endowment
NACUBO hears many positive comments
from financial statement users about the
detailed endowment disclosure that resulted
from 117-1
o Such a disclosure could/should parallel
information requested on NACUBO
Endowment Study
o Since UPMIFA eliminated the notion of
“underwater,” FASB should not use
“original gift” terminology
o Underwater should be defined as the
amount below which the donor specifies
or the board interprets that funds cannot
be spent
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Institution’s thoughts/
observations/feedback
NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
3. Prescribed operating measure
NACUBO Thoughts and Questions
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The metric should be MEANINGFUL if it is
prescribed
Dimensions of mission and availability are
acceptable, but application to certain
transactions (e.g., capital transactions) is not
appropriate
Why does the short definition of mission
automatically exclude investing and
financing activities?
Clunky flow between operating and nonoperating in the same net asset class when
buildings (PP &E) placed in service
o When there is a restriction release, why
not simply release the amount
corresponding to PP&E as non-operating
o Long-lived assets are not entirely
available for use (consumption) in the
current period which seems to violate the
availability dimension.
o (NACUBO “blank slate” team –
dismayed that Net PP&E net asset
category was not discussed / explored.
All financial statement users NACUBO
has talked to prefer GASB’s “Net
investment in plant” category – it’s very
helpful for entities with significant
PP&E)
Doesn’t make sense to exclude certain
investing and financing activities
o Virtually all interest expense is directly
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Institution’s thoughts/
observations/feedback

NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
NACUBO Thoughts and Questions
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related to mission.
o With significant PP&E (used to carry out
mission related activities), interest
payments on debt make resources
unavailable to support other operating
activities
 All other facility related costs are
operating (e.g., rent)
 Depreciation expense is operating
o Interest income as a result of treasury
management / balance sheet management
activities should be operating. It is used
to pay operating expenses.
Transfers:
o can make presentation clunky
o “allocating resources” or “telling the
story” through the P&L is misguided
 Users want to see a meaningful
excess/(deficit) of operating revenue
minus operating expenses
 Can governing board net asset
designations allow for designations of
former year accumulations?
 Would a prior year amount
designated into the quasi
endowment be shown as a
transfer in to operations then a
transfer back out?
 If a prior year amount is solely
indicated as a transfer out, the
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Institution’s thoughts/
observations/feedback
NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
NACUBO Thoughts and Questions
current year operating results
will be distorted (Question has
been posed to FASB staff)
 Can NFPs transfer prior designations
into operating for other than the
Board’s designated intent?
o Showing movements within the same net
asset class on the face of the statement of
activities will be confusing for users. It
may appear that the transfer amounts are
“new” revenue.
o Why not require that governing board
restrictions on resources be displayed in
the net asset categories, with
accompanying disclosures.
 Operating metric would not be
affected
 Operating metric would be more
meaningful
 Would facilitate correlations between
liquidity disclosure and designations /
restrictions
o To avoid using transfers to manipulate
operating results, perhaps transfers
should have a limited scope
 long horizon / intent of the governing
board (organization’s management by
proxy / policy)
 quasi endowments, long term capital
campaign commitment (entity
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Institution’s thoughts/
observations/feedback
NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
NACUBO Thoughts and Questions
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matching funds) or verifiable long
term capital project or bond sinking
fund
o Endowment spending – true and quasi –
are brought into income in two separate
lines: true endowment above first
subtotal and quasi endowment with
transfers above second sub-total.
o Will institutions “transfer” amounts into
income to cover depreciation? Will
institutions transfer amounts into income
to cover “discounts” that exceed other
sources of revenue in the current period?
Parallel / articulation to categories on cash
flow statement:
o Unclear if interest expense is a financing
(non-operating expense) because interest
expense is a financing activity on the
cash flow statement.
o Why can’t cash flow statement and SOA
have “financing and investing activities
that support operations,” (e.g. interest
expense, quasi endowment release,
interest income on operating cash) as part
of the initial measure before transfers?
o If cash flow statement is important to
revisit in the NFP Reporting Model
Project, then the operating metric should
drive the cash flow presentation and not
the other way around
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Institution’s thoughts/
observations/feedback
NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
4. Cash flow statement changes
a. Direct method for operating cash
flows
b. Classify as operating cash flows
(rather than investing) cash flows
resulting from:
 Purchases of long-lived
assets
 Restricted contributions to
acquire long-lived assets
 Sales of long-lived assets
c. Classify as financing cash flows
(rather than operating):
 Interest payments
d. Classify as investing cash flows
(rather than operating)
 Interest and dividends on
loans / investments
 Above bullet doesn’t apply
for “programmatic purposes”
(e.g. programmatic loans)
NACUBO Thoughts and Questions
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Direct method cash flows for operating
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activities is acceptable
Per above comments (#3), operating
activities should “drive” cash flow
presentation
Given that classification and approach
changes are being proposed ONLY for
NFPs:
o Why not have (a) “Operating Cash
Flows” and (b) “All Other Cash Flow
Activities” with clear labels?
o Operating cash flow “activities”
would clearly articulate to the
“activities” considered operating
o “All other activities” would articulate
to below-the-line non-operating
activities
Within “Operating Cash Flows” – why not
include “investing and financing activities
that support operations.” (see page 6, first
bullet, second sub-bullet)
Alternatively:
o Allow bifurcation of interest and
dividend cash flows between
operating and investing. For example,
treasury optimization of operating
cash flows and interest income on
short term investments used in
operations.
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Institution’s thoughts/
observations/feedback
NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
NACUBO Thoughts and Questions

Institution’s thoughts/
observations/feedback
Or:
o Don’t make any changes to the
classifications within the cash flow
statement until the Board addresses
such changes for all entities at the
same time.
5. Capital activity changes – related to
new requirements mentioned in #3 and
#4 above
a. Gifts of long-lived assets without
restriction – flow through
operating, with reclassification to
non-operating if organization /
governing board decides to use
the asset in operations
b. Gifts restricted to PP&E:
- recognized as an increase in “net
assets with donor restriction”
- when restriction is met (placed
in service), the restricted amount
is released to operations,
- restriction release is then
reclassified to non-operating
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Presentation is clunky and designed to track
scenario (5a), which is rare
If an institution is going to monetize a
donated asset, they are likely to know that
before the end of their fiscal year, so if that’s
what they decide to do, they should include
the fair value of the asset in operating.
Otherwise, capital transactions should
always be included in non-operating.
If the capital asset (as donated with or
without restriction and with a restriction
release when asset is placed in service) flows
through operations, why wouldn’t related
interest expense flow through operations?
Again NACUBO / Blank Slate Team was
disappointed that there was no discussion of
flowing capital gifts, grants, etc. through a
“net investment in plant” net asset category.
o Aligns with GASB (only government and
NFP use net asset categories)
o Users like “net investment in plant”
o Cash flow statement would follow suit
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NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
6. Natural to functional expense analysis
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and disclose method used to allocate
support and/or indirect costs to program 
functions or support functions
Question 13 – Do you agree that reporting
operating expenses by both their function
and nature together with an analysis of all
expenses (other than netted investment
expenses) provides relevant and useful
information in assessing how an NFP uses
its resources and, thus, should be required?
Why or why not? (See paragraphs BC87–
BC93.)
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NACUBO Thoughts and Questions
The Board’s intent is acceptable (see BC87 –
93)
Although BC93 explains that the Board
wanted a requirement for an analysis of all
expenses (natural and functional) in one
location and Board meeting minutes reflect
and reinforce the Board’s desired
requirement – this requirement is not clear
under the “main provisions” of the proposal.
Page 3, point 6, paragraph d only asks for
expenses by both nature and function.
We think a brief description that describes
the functional categories and expenses that
are allocated (e.g. institutional support,
interest, O&M, etc…) would be helpful
Allocation methodology discussion should
be brief
New requirement to disclose internal
investment expenses may cause confusion
(the disclosed expenses would not be
included in the analysis)
Many NFP will likely include non-operating
expenses (such as interest) in the analysis, so
that total expenses are clearly labeled.
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Institution’s thoughts/
observations/feedback

NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
7. Net investment return and new
disclosure
NACUBO Thoughts and Questions
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OK with net investment return as it is
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defined today (net of related expenses; 958225-45-14)
However, the proposed requirement (Page 4,
Point 6, paragraph 8) is to report investment
income net of external and direct internal
investment expenses.
o Institutions with an internal investment
group tend to net all related expenses and
some of these may be allocated.
o There can be quite a difference between
related investment expenses and direct
investment expenses.
New requirement to disclose internal salaries
and benefits netted against investment return
is questionable
o The expense numbers are not
meaningful, they are not comparable,
the net investment return is the
meaningful amount
o Expense amounts may be misunderstood
especially with natural to functional
expense analysis requirement
o If the idea is that a user could add the
amount of investment salaries and
benefits to the total salaries shown in the
analysis to get the actual amount of
salaries paid, it won’t work because
some salaries are capitalized (for
example, salaries capitalized or internal
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Institution’s thoughts/
observations/feedback
NFP Reporting Model Changes Summary
NACUBO Thoughts and Questions
Higher Education Feedback Matrix
Proposed Changes to NFP Reporting
Model
NACUBO Thoughts and Questions
software development)
o A disclosure concerning whether the
portfolio is externally or internally
managed may be most appropriate, and
nothing more.
8. Other disclosure modifications
a. Purpose, amount, and type of
transfers
b. Liquidity
c. Composition of net assets with
donor restrictions at the end of the
period and how the restrictions
affect the use of resources
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Again, the notion of transfers is so clunky in 
presentation that disclosures are required. So,
NACUBO thinks it’s better to have one line
netting all transfers “to operations” and
“from operations” with a disclosure, rather
than having the statement of activities be
unreadable
Concerning liquidity: not enough discussion
and illustration of a meaningful disclosure –
especially since financial statement users
have reported that they want to understand
how restrictions impact liquidity (if at all).
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Institution’s thoughts/
observations/feedback