Author: Doug K. Nickerson, CPA, CGFM, CFE, CIA, CCA | Business Assurance & Advisory Services Partner
The Financial Accounting Standards Board’s (FASB) Not-for-Profit Advisory Committee (NAC) has been actively working on a new standard-setting project intended to improve financial reporting for nonprofit organizations in order to better inform donors, creditors and other interested parties of the financial statements.
The FASB is re-examining existing standards and intends to provide clarity and improvements to include the following areas:
Net asset classification
The FASB will review net asset definitions to clarify certain terminology used in practice, and how they might be relabeled or redefined. The intent of this re- examination of definition is to allow financial statement users (e.g. donors, banks, auditors) to better assess liquidity and liquidity risk in the nonprofit organization’s statement of financial position and related notes. Under current presentation guidance, unrestricted net assets do not properly inform such readers of the financial statements as to the liquidity of related assets.
Reporting model for statements of activities and cash flows
Under current presentation guidance, nonprofit organizations are not required to present activities between operating and non-operating. The board is examining how to more clearly define and segregate the statement of activities between operating and non- operating to aid in comparing operating activities of nonprofit organizations and more clearly communicate financial performance. Because of the difficulties many financial statement users have in understanding the relationship between the statement of cash flows and the statement of activities, the FASB is considering revising the presentation of the statement of activities to better connect with cash flows from operations.
Financial statement disclosures
The FASB is considering streamlining the financial statements disclosures so that they are more relevant and understandable to the financial statement user.
Management’s Discussion and Analysis The FASB is looking into creating a financial reporting framework for management to provide commentary and analysis about the nonprofit organization’s financial health, operations, and future to better tell the organization’s financial story, similar to what is provided in a public company’s management discussion and analysis in their annual reports.
The FASB is actively working on this project trying to refine their recommendations. They estimate that an exposure draft will be released for public review and comment sometime during the first half of 2014.
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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.