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
1
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Institution’s thoughts/
observations/feedback
Agree here.
No major changes to internal
controls for classifying and
reporting restricted and
unrestricted assets. May require
1-time reclassification of fund
codes from temp restricted to
either restricted or unrestricted
and the related evaluation to
determine appropriate category.
With disclosure caveat, a
positive change, temp and perm
always difficult to explain
Agree – an acceptable change
but readers benefit from
understanding how much of the
“with donor restrictions” is
expendable.
NFP Reporting Model Changes Summary
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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
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
o Aggregate underwater disclosure is
more meaningful if percentage of
underwater funds is also disclosed.
2
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Institution’s thoughts/
observations/feedback
Agree

#2 is okay and the tabular rollforward is useful and should
remain

#3 – Disclosure of the
components of “underwater” are
ok.

We should not change
measurement of Underwater;
UPMIFA did not eliminate the
notion of “underwater” – rather
qualified spending from
underwater

In FASB FSP 117-1, para #3, it
states “UPMIFA eliminates
UMIFA’s historic-dollar-value
threshold” –UPMIFA eliminated
using HD as a hard line under
which an institution could not
spend.
117-1 required (para 5) that an
NFP…shall classify a portion of
a donor-restricted endowment
fund of perpetual duration as
permanently restricted…”
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NFP Reporting Model Changes Summary
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Proposed Changes to NFP Reporting
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3
Institution’s thoughts/
observations/feedback
 FASB should not use “original
gift” terminology – it was
eliminated in favor of the
institution’s ability to decide
what PR is.
 Not entirely comfortable with
“Underwater should be defined
as the amount below which the
donor specifies or the board
interprets that funds cannot be
spent” – Perhaps “generally” will
not spend or “the institution will
carefully monitor prudent
spending if spending is needed”
There are institutions that
spends from underwater funds.
Changing the language will
reinforce the disclosure
requirement.
 Institutions should simply
continue what they have been
doing under 117-1 re their u/w
disclosures (report deficiencies
below PR), and it’s reasonable to
add the 3a-c component
breakout.
 No internal control implication /
major changes for financial
presentation
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Proposed Changes to NFP Reporting
Model
3. Prescribed operating measure
Interest expense is out
Payout on quasi not included
Assets released from restrictions
NACUBO Thoughts and Questions
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Huge change for healthcare industry
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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
4
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Institution’s thoughts/
observations/feedback
Interest expense requires more
discussion. EBIDTA is
increasingly more important as a
measure of operations in our
institution, which would support
that perhaps interest really isn’t
an operating measure. Definitely
a financing measure and a
resource measure – but the
FASB makes a good argument
about interest not being core
mission operations. If we want
to counter argue, perhaps:
 Debt service impacts our
decentralized structure as
we require schools to
stand on their own. Since
they must factor in debt
service, it could be
viewed as a factor in
setting rates.
 If we exclude interest
income and interest
expense, do we also
exclude endowment
spending and trust
distributions as well?
Question 17: Transfers between
NFPs under common control:
Equity transfers have to be
NFP Reporting Model Changes Summary
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Proposed Changes to NFP Reporting
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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
5
Institution’s thoughts/
observations/feedback
reflected as an operating activity
unless they are not for the
current period’s use. This would
impact our stand-alone reporting
between our healthcare unit and
the university.
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Might we propose alternative:
A – Create an investment in
plant section (A third subtotal?)
or put in with the “transfers”
section
B – Classify capital including
gifts as an investing activity (and
therefore it runs thru operating
and require disclosure of changes
in net assets related to capital so
the reader can make his/her own
adjustments. This latter would
cure the problems with the
“availability” notion.
Perhaps we suggest that interest
expense can be allocated b/w op
and nonop, but the components
have to be disclosed so that a
user could get to “comparability”
To confirm if we borrow $$ to
finance a building for mission
then the interest is non op and a
financing cash flow, but if we
NFP Reporting Model Changes Summary
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Proposed Changes to NFP Reporting
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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
6
Institution’s thoughts/
observations/feedback
lease (operating) to finance a
building for mission then the rent
(including the implicit interest
cost) is in operating? But if I do
a capital lease …(different
answer? – is there interest
expense picked up- I can’t keep
existing accounting vs. the Lease
standard straight!).
If these transfers can be justified the
goal of comparability is out the
window.
Totally agree here the FASB should
make its intent clear so that auditors
know that “depreciation transfers and
whatever else someone can devise are
not the intent.
Wiggle room in the transfers (is it
possible to remove)? Is going to defeat
the comparability intent.
This is a secondary argument but
Maybe we should insist that there be
certain transfers disclosed at a
minimum – that way users can get to
certain comparable information and
disregard all the creative ones that are
NFP Reporting Model Changes Summary
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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
likely to emerge
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No significant internal control
implications. Seems like a lot of
top-side work for a disclosure
that may be misunderstood or
misleading…
“voluntary restrictions” (not
donor imposed) may be too easy
to reclassify across periods,
which may limit comparability is
the amounts are significant.
NFP Reporting Model Changes Summary
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Proposed Changes to NFP Reporting
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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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Institution’s thoughts/
observations/feedback
Direct method cash flows for operating
 Agree here, not much new to
activities is acceptable
add. Question is how best to
argue back.
Per above comments (#3), operating
activities should “drive” cash flow
 Agree – direct method is more
presentation
meaningful. We have crossGiven that classification and approach
walked the indirect to direct but
changes are being proposed ONLY for
would use system to generate.
NFPs:
PeopleSoft has the functionality
o Why not have (a) “Operating Cash
but would likely require
Flows” and (b) “All Other Cash Flow
configuration not required in the
Activities” with clear labels?
past. Schools could have a oneo Operating cash flow “activities”
time pain, though.
would clearly articulate to the
“activities” considered operating
o “All other activities” would articulate  I’m concerned about the
restricted contributions to acquire
to below-the-line non-operating
long-lived assets. Is the intent to
activities
lift the restriction once the asset
Within “Operating Cash Flows” – why not
is purchased or constructed? If
include “investing and financing activities
not, then the asset is permanently
that support operations.” (see page 6, first
restricted, which does not feel
bullet, second sub-bullet)
right to me since it enters the
Alternatively:
realm of operating use at that
o Allow bifurcation of interest and
point. Then depreciation would
dividend cash flows between
net against the restricted asset,
operating and investing. For example,
too? The accounting and
treasury optimization of operating
controls for accurate presentation
cash flows and interest income on
get really messy if the asset is
short term investments used in
acquired in part with restricted
operations.
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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
9
Institution’s thoughts/
observations/feedback
and in part with unrestricted
funds (institutional funds).
When the restricted asset is not in
the endowment accounting
buckets, the internal controls
become more difficult to employ
to ensure accurate tracking and
presentation over the long term.
 Agree here. How can we argue
that building gifts much much
more like restricted endowments
than anything else?

Elimination of the current option
to release restricted cash gifts for
construction/purchase of capital
assets over the useful life of the
related asset will have significant
implications for the smaller
institutions where there is less
ongoing capital
giving/acquisition. Full release
of the restriction in one year will
result in a significant positive
bottom line which may be
followed by deficits in future
years when there is no release of
restrictions to offset the related
depreciation expense. I have
served at three small institutions
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6. Natural to functional expense analysis

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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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
10
Institution’s thoughts/
observations/feedback
that would be very negatively
impacted by eliminating this
option to match the revenue and
expense.

See #4 for PP&E

Agree that this is acceptable

Agree on brief descriptions of
the categories and the allocations
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7. Net investment return and new
disclosure
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Institution’s thoughts/
observations/feedback
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.
OK with net investment return as it is
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
11
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Agree on Net return.
Agree that disclosure of internal
expenses for investments will be
confusing and more– there is no
context for the expenses
For an ED with presentation
changes as sweeping as this one,
this requirement is curiously
small in scope. Preparers should
disclose fee information they
think is relevant to users, period.
Many universities have an
investment methodology and net
performance that is considered
proprietary. There’s competitive
edge risk for disclosing details
not necessary to understand the
financial performance and health
of the entity overall.
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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
software development)
o A disclosure concerning whether the
portfolio is externally or internally
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managed may be most appropriate, and
nothing more.
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12
Institution’s thoughts/
observations/feedback
Additionally, if some of these
costs are part of overall 3rd party
investment management fees,
will this require a further
breakdown for disclose to the
university statement user? If so,
what due diligence will be
necessary to ensure fair and
accurate investment performance
versus management fees and
other overhead expenses?
Agree with the last bullet
regarding simple disclosure of
internal/external mix of portfolio
management
How do we handle Treasury
department expenses that have
some investments in the
investment line and cash
investments in the Cash line?.
Will these internal expenses now
require netting and disclosure?
While not a FASB concern, how
will this impact the NACUBO
Endowment Study rankings?
Agree with NACUBO’s question
about the benefits readers gain
from this proposed change. This
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Institution’s thoughts/
observations/feedback
would seem to be more
meaningful for the Form 990
than for financial presentation.
Would like to understand the
drivers for this change.
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13
We agree that there is no benefit to
the reader to disclose internal
salaries and benefits of the
Investment Office employees. We
actually believe that this disclosure
could actually confuse the reader
more. The composition of
endowment investment offices
differ based on the types of
strategies being implemented, thus
eliminating the usefulness of the
comparability of this
disclosure. For example, you could
have two endowment investment
offices that both have $5 billion
AUM:
One office implements an internal
investment management strategy
(internal trading) and because of
such, has an internal risk/trading
team, therefore larger headcount
and investment office
salaries/benefits.
The second office only invests in
fund structures and therefore has a
lower headcount/salaries.
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14
Institution’s thoughts/
observations/feedback
Potential concerns:
There are big levers that drive costs
of staffing – whether or not you
outsource your investment
management to a consultant, if you
do internal trading (which typically
saves significant fund fees but will
look higher in terms of salaries),
and whether or not you have
outsourced your operations to
another provider.
This disclosure should be of
concern for university
boards. Boards and Investment
Committees are not going to want to
have to justify investment office
compensation among peer
institutions and for internal
purposes, we have more thoughtful
3rd party benchmarking studies that
do that each year for us.
There is no disclosure that shows
the disparity of the investment
strategies employed by each
university’s internal investment
offices.
We would like clarification on page
4, point 8 of FASB Exposure Draft
on Topic 958 and Topic 954 issues
April 22, 2015. We want to make
sure that the Board is not
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Institution’s thoughts/
observations/feedback
suggesting that we calculate and
present fees that are embedded in
the NAV’s of hedge funds & private
equity funds in order to report
investment income net of external
and direct internal investment
expenses? I don’t see that this is a
proposed requirement but it would
be helpful if we could verify this. If
that is an expectation of this new
disclosure requirement, we believe
that for universities with larger
endowments this task would be
extremely burdensome to
satisfy. It would require additional
internal resources to coordinate
with external fund managers for
data collection and verification and
given that many firms do not have
the same fiscal year as us, this
would be nearly impossible to
obtain. Emory currently has
approximately 330 active funds,
many of which have embedded
fees. This may be a moot point but
if we were required to calculate
embedded manager fees, here are
some concerns:
o Internal concerns over ability for
completeness
o Internal concerns over the ability
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Institution’s thoughts/
observations/feedback
of the auditors to test the
accuracy of those calculations
o Internal concerns over potential
causes for delay in the issuance
of the financial statements due
to data collection issues from
managers
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  I need to unpack the liquidity
presentation that disclosures are required. So,
area to a greater extent. For
NACUBO thinks it’s better to have one line
Caltech’s/my comment letter I’m
netting all transfers “to operations” and
going to get into that. Happy of
“from operations” with a disclosure, rather
course to share what I get.
than having the statement of activities be
unreadable
 Agree / no further comments
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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