Project Update

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

Last updated on March 19, 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, 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 Not-for-Profit Financial Reporting: Other Financial Communications project. Please find the press release here.

*Decisions Reached at Last Meeting (March 12, 2014)

Presentation and Disclosure of 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 the liquidity of a not-for-profit (NFP) entity. 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 NFP entities could improve the financial information they provide about liquidity. Those ways include:
  1. Providing a classified statement of financial position
  2. Distinguishing assets limited as to use from other assets, either on the face of the statement of financial position or in notes
  3. Disclosing information in notes to financial statements about the nature, timing, amount, and effects on liquidity of external restrictions imposed by donors, contracts, and other sources as well as limits imposed by an entity’s board of directors.
  4. Disclosing specific information in notes to financial statements about an entity’s liquidity, which includes information such as (a) assets that can be liquidated to meet near-term demands (a time horizon determined by the NFP), (b) policies on the use of liquidity reserves in managing liquidity and liquidity risks, (c) past liquidity issues and whether they remain risks, and (d) existing conditions and circumstances that are known and are reasonably possible to affect an entity’s cash flow trends and liquidity.
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 might 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.

*Summary of Decisions Reached to Date (March 12, 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, except business-oriented healthcare providers that currently are required to provide a performance indicator that is a similar but not identical measure. The Board directed the staff to undertake additional outreach with stakeholders from the healthcare industry. Furthermore, the Board tentatively decided that NFPs reporting an intermediate measure of operations would no longer be required (under 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 hard-line distinction between temporary restrictions and permanent restrictions and (b) focus instead 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 further decided to require disclosure of information about the amount and purposes of board designations of net assets without donor-imposed restrictions.

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 NFPs to report expenses by their nature and retain the requirement to report expenses by their function. The Board further decided to require NFPs 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 would typically be provided in the form of a matrix, that specific format would not be required.

Also, the Board tentatively decided to require NFPs to include a net presentation of investment expenses against investment return on the face of the statement of activities, with the types and amounts of investment expenses disclosed in the notes to the financial statements. The Board further directed the staff to conduct additional research on what types of investment-related fees and other investment expenses would be required to be disclosed as investment expense.

Presentation of Revenues, Expenses, and Other Changes in Net Assets


The Board tentatively decided to allow flexibility to present revenues, expenses, and other changes in net assets using a one- or two-statement approach. As mentioned above, the Board tentatively decided that NFPs reporting an intermediate measure of operations would no longer be required (under 958-225-45-10) to report that measure in a statement that also reports the change in unrestricted net assets for the period.

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 the liquidity of a not-for-profit (NFP) entity. 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 NFP entities could improve the financial information they provide 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 might 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.

*Next Steps

During the week of March 10 and 17, the staff will seek Project Resource Group (PRG) members’ (a) feedback on Board decisions to date and (b) input on upcoming topics related to matters of presentation in financial statements of not-for-profit entities (NFPs). The two main upcoming topics are:

  1. Continuing its research on ways to improve information about liquidity.
  2. Improving NFP specific note disclosures.

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.

*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. Furthermore, the staff has subsequent discussions 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.

*Contact Information

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

Richard Cole
Project Manager
racole@fasb.org

Don Kim
Postgraduate Technical Assistant
dkim@fasb.org

Karlene Tipton
Postgraduate Technical Assistant
kjtipton@fasb.org