Project Update

Financial Statements of Not-for-Profit Entities
(Project was renamed after the project on Not-for-Profit Financial Reporting: Other Financial Communications was removed from the Board's technical agenda.)

Last updated on June 30, 2014. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.


(Updated sections are indicated with an asterisk *)


The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective(s)
*Decisions Reached at Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
*Contact Information

Project Objective(s)

The objective of this project is to reexamine existing standards for financial statement presentation by not-for-profit entities (NFP), focusing on improving:

  1. Net asset classification requirements
  2. Information provided in financial statements and notes about liquidity, financial performance, and cash flows. 
An April 2012 podcast outlines the objectives of this project and a related research project, Not-for-Profit Financial Reporting: Other Financial Communications.

On January 29, 2014 the Board discussed the FASB’s agenda prioritization and voted to add or remove certain projects from its or the Emerging Issues Task Force’s (EITF) agenda. At that meeting the Board voted to remove the Not-for-Profit Financial Reporting: Other Financial Communications project. Please find the press release here.

*Decisions Reached at Last Meeting (June 18, 2014)

Investment Expenses

The Board continued its deliberations on the presentation and disclosure of investment expenses. The Board reaffirmed its tentative decision to require external and direct internal investment expenses to be netted against the investment return. However, the Board reconsidered the current disclosure requirement for netted investment expenses. Paragraph 958-225-50-1 currently requires a not-for-profit (NFP) entity to disclose the amount of investment-related expenses netted against investment revenues if that amount is not disclosed on the face of the statement of activities. After further consideration, the Board decided to remove the disclosure requirement existing in current GAAP about netted investment expenses for all NFP entities.

Capital-Like Transactions

The Board discussed how an entity would classify and present capital-like transactions and events in the statement of activities and the statement of cash flows. The Board directed the staff to further develop examples of how capital-like transactions would be presented over time in the statement of activities.

Note Disclosures

The Board considered the staff plans for improving note disclosures of NFP entities and:
  1. Directed the staff, as planned, to prepare examples illustrating a more cohesive presentation of current disclosure requirements for investment, endowment net assets, and fair value level disclosures.
  2. Decided to require that the so-called underwater amounts should be reported within the proposed with donor restrictions class of net assets (rather than as unrestricted class of net assets as currently required). The underwater amount is the amount by which the fair value of an individual donor restricted endowment fund is less than the original gift amount or level required by donor stipulations or law. An NFP entity also would be required to disclose the following information about underwater endowment funds in the aggregate:
    1. The board’s policy or decision on whether to reduce or not spend from the endowment fund
    2. Original gift amount (or level required by donor stipulations or law)
    3. Fair value.
  3. Directed the staff to continue conducting outreach and developing examples related to the potential disclosure of significant allocations of expenses.

*Summary of Decisions Reached to Date (June 18, 2014)

Operating Measure


The Board tentatively decided to define an intermediate operating measure on the basis of two key dimensions:
  • A mission dimension based on whether resources are from or directed at carrying out an NFP’s purpose for existence
  • An availability dimension based on whether resources are available for current period activities, and reflecting both external limitations and internal actions of an NFP’s governing board.
The Board further considered three alternatives for presenting an intermediate measure in an NFP’s statement of activities and tentatively decided to support an alternative that would present all legally available mission related revenues before reductions for amounts designated by the governing board for use in future periods, rather than only the net of those amounts. That presentation also would include amounts of previously unavailable resources that the governing board made available for use in the current period. The Board decided to require the presentation of the intermediate measure of operations by all NFPs, including business-oriented health care providers. Business-oriented health care providers would be permitted, but no longer required, to present the performance indicator that is currently required by paragraph 954-225-45-4. The Board tentatively decided to allow flexibility to present revenues, expenses, and other changes in net assets using a one- or two-statement approach. Furthermore, the Board tentatively decided that NFPs reporting an intermediate measure of operations no longer would be required (under paragraph 958-225-45-10) to report that measure in a statement that also reports the change in unrestricted net assets for the period.

Net Assets


The Board tentatively decided to replace the existing requirements of presenting totals for each of three classes of net assets on the face of a statement of financial position and for changes in each of those classes on the face of a statement of activities with similar requirements for each of two classes of net assets that convey net assets with donor-imposed restrictions and without donor-imposed restrictions.

The Board also tentatively decided to retain the current requirement to provide information about the nature and amounts of different types of donor-imposed restrictions but modify the requirement to (a) remove the hardline distinction between temporary restrictions and permanent restrictions and (b) instead focus on describing differences in the nature with a focus on both how and when the resources (net assets) can be used. To present potential loss of information, the Board also decided to require disclosure of information about the amount and purposes of board designations of net assets without donor-imposed restrictions.

Underwater Endowments

The Board decided to require that the so-called underwater amounts should be reported within the proposed with donor restrictions class of net assets (rather than within unrestricted net assets as currently required). The underwater amount is the amount by which the fair value of an individual donor restricted endowment fund is less than the original gift amount or level required by donor stipulations or law. An NFP entity also would be required to disclose the following information about underwater endowment funds in the aggregate:
  1. The board’s policy or decision on whether to reduce or not spend from the endowment fund
  2. Original gift amount (or level required by donor stipulations or law)
  3. Fair value.

Statement of Cash Flows


The Board tentatively decided to improve the statement of cash flows by requiring the direct method of reporting cash flows provided (used) by operating activities and removing the requirement to reconcile the change in net assets to net cash flows from operating activities (often referred to as the indirect method). The Board also discussed revising the cash flow categories to better align them with the tentative decision for an intermediate measure of operations. Detailed revisions are available here.

Reporting of Expenses


The Board tentatively decided to require an NFP to report expenses by their nature and retain the requirement to report expenses by their function. The Board also decided to require an NFP to provide an analysis of all expenses by function and by nature in one location, in the statement of activities, a separate statement of expenses (currently called a statement of functional expenses), or a schedule in the notes. That analysis would include all expenses, both operating and non-operating, and would neither require nor preclude functionalization of non-operating expenses. Although this analysis typically would be provided in the form of a matrix, that specific format would not be required.

Investment Expenses

Also, the Board tentatively decided to require an NFP to include a net presentation of investment expenses against investment return on the face of the statement of activities. An NFP would be required to net external and direct internal investment expenses against the investment return. Paragraph 958-225-50-1 currently requires an NFP entity to disclose the amount of investment-related expenses netted against investment revenues if that amount is not disclosed on the face of the statement of activities. The Board decided to remove that requirement from GAAP.

Liquidity


The Board discussed the objective of providing liquidity information and agreed that the objective is to provide information that allows donors, creditors, and other users to assess an NFP’s liquidity. That includes providing information that enables users to identify and understand the effects of restrictions placed on an NFP’s assets, including designations by its board of directors, and the extent to which existing obligations impose demands for cash as they become due.

The Board discussed several ways that an NFP entity could improve the financial information it provides about liquidity, including providing a classified statement of financial position, distinguishing assets limited to use, disclosing liquidity information in the individual notes to financial statements, and/or including a specific liquidity note. Board members expressed differing degrees of support and reservations about requiring one or more of the alternatives stated above, including the degree to which they may overlap and result in redundant disclosures. The Board instructed the staff to conduct further research and analysis on the implications of requiring various alternatives and how they would be portrayed in an NFP’s financial statements and notes.

After further research and discussion, the Board tentatively decided that an entity should define the time horizon it uses to manage its liquidity (for example, 30, 60, or 90 days) and disclose quantitative and qualitative information that are useful in assessing liquidity. The quantitative information includes total amount of financial assets, amounts that are not available to meet cash needs within the time horizon due to various restrictions, and total amount of financial liabilities that are due within that time horizon. In addition, the qualitative information would allow users to understand how the entity manages its liquidity. For example, the entity might disclose its strategy for addressing entity-wide risks that may affect liquidity, including its use of lines of credit, policy for establishing liquidity reserves, and/or basis for determining the time horizon used for managing liquidity.

*Next Steps

The main upcoming topics are:

  1. Improving NFP-specific note disclosures
  2. Classifying capital transactions and events, including restricted gifts to acquire or construct long-lived assets and when such restrictions expire
  3. Other specific implementation issues, such as presentation of equity transfers, noncontrolling interests in subsidiaries, classification of changes in beneficial interests in trusts managed by others.

For the project timeline, refer to the technical plan.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*June 18, 2014 Board Meeting—Clarification of the Board’s Tentative Decision: Presentation and Disclosure of Investment Expenses; Capital-Like Transactions; Note Disclosures of Not-for-Profit Entities
May 28, 2014 Board Meeting—Presentation and Disclosure of Information about Liquidity
May 14, 2014 Board Meeting—Presentation and Disclosure of Investment Expenses, Foundation Outreach, and Health Care Outreach and Performance Indicator
March 12, 2014 Board Meeting—Presentation and Disclosure of Liquidity
February 26, 2014 Board Meeting—Presentation of Revenues, Expenses, and Other Changes in Net Assets; Presentation and Disclosure of Investment Expenses
December 18, 2013 Board Meeting—The Statement of Functional Expenses
December 11, 2013 Education Session—The Statement of Functional Expenses
October 23, 2013 Board Meeting—The Statement of Cash Flows
October 2, 2013 Education Session—Liquidity and The Statement of Cash Flows
September 4, 2013 Board Meeting—Net Asset Classes: Classification and Disclosure Requirements
May 29, 2013 Education Session—Net Asset Classes: Background, Stakeholder Concerns, Plans for Revisiting the Net Asset Classes
May 29, 2013 Board Meeting—Operating Measure: Definition and Presentation
May 15, 2013 Education Session—Operating Measure: Definition (cont.)
March 28, 2013 Education Session—Operating Measure: Definition (cont.)
January 31, 2013 Education Session—Operating Measure: Background, Objectives, Definition
June 6, 2012 Board MeetingProject Plan 
May 16, 2012 Education Session—Handout 
November 9, 2011 Board Meeting—Agenda Announcement

Background Information

On November 9, 2011, the FASB chairman announced (press release) the addition of two agenda projects—this standards-setting project and a research project (Not-for-Profit Financial Reporting: Other Financial Communications)—intended to improve financial reporting of not-for-profit entities. The objectives of these projects encompass suggestions received by the Board from its Not-for-Profit Advisory Committee (NAC) at the Committee’s September 2011 meeting. The staff discussed the plans and approach for both projects with the NAC at its March 2012 and September 2012 meetings. Subsequent and ongoing discussions are held with members of the project resource group as well as members of NAC. The NAC page contains handouts and minutes from the NAC meetings.

On January 29, 2014 Agenda prioritization meeting, the Board voted to remove Not-for-Profit Financial Reporting: Other Financial Communications project. This decision and potential alternatives were discussed with NAC at its March 2014 meeting.

*Contact Information

Ronald J. Bossio
Senior Project Manager
rjbossio@fasb.org

Richard Cole
Project Manager
racole@fasb.org

Andrea Willette
Postgraduate Technical Assistant
amwillette@fasb.org

Karlene Tipton
Postgraduate Technical Assistant
kjtipton@fasb.org