Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Update on overhaul of not-for-profit financial statement presentation

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Image courtesy of

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A major rewrite of how NPOs present their financial statements is under consideration by FASB. An exposure draft was released in April 2015.

(Cross-post from my other blog, Nonprofit Update.)

December FASB meeting

FASB has broken the project into two parts. One will move forward on a timely basis and the other will be postponed for reconsideration.

Here is a high-level summary of key components discussed at their December 11, 2015 meeting,

Moving forward:

  • Collapsing the current three categories of net assets into two. The temporarily restricted and permanently restricted net asset categories will be combined into with donor restrictions category.
  • If organizations use the direct method of cash flow reporting the indirect reconciliation will no longer be required.
  • Deficit in underwater endowments will be classified in with donor restrictions category of net assets.
  • Require disclosure of amount and purpose of board-designated net assets. This could be done in the notes or on the face of the financial statement.

For later consideration:

  • Requiring all NFPs to use the direct cash flow reporting method.
  • Substantial expansion of liquidity reporting.
  • Requiring a statement of functional expenses for all NFPs. Alternatively, the information can presented in a note to the financial statements. Currently only voluntary health & welfare organizations are required to present a statement of functional expenses.
  • Requiring investment income be reported net of all external and direct internal investment expenses.
  • Required intermediate operating measures. The draft spells out two required measures of operations with specific definitions of what transactions belong where. This would be the biggest revision to the reporting model, creating substantial change to the face of the statement of activities.

For more information, check out:

February FASB meeting

A colleague sent me a newsletter reporting on the February 3, 2016 FASB meeting. That report is not publicly available so I cannot link to it. The minutes of that meeting are not yet posted to the FASB website.

Some of the decisions in their February meeting:

  • Investment returns must be presented net of external and direct internal costs. Disclosures of the expenses netted against revenue will not be required. This is a change from the draft which required disclosure of the netted salary costs.
  • Board is moving towards requiring a statement of functional expenses. Discussion is so brief that I do not understand precisely where this stands.
  • Board affirmed requiring narrative discussion of how costs are allocated between program and supporting services.

The brief article did not distinguish between discussion on Phase 1 issues and Phase 2. Obviously there will be a lot more debate by the board. Keep your eyes open for more details.

Written by Jim Ulvog

February 12, 2016, 7:10 am at 7:10 am

Posted in Accounting

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