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As we have written before, the Financial Accounting Standards Board (FASB) has been contemplating making significant changes to the ways that Not-for-Profits (NFP) present their financial statements. In early March, the FASB directed its Not-for-Profit Advisory Committee to proceed with completing the Exposure Draft on the proposed accounting standards update, Not-for-Profit Entities (ASC Topic 958) – Presentation of Financial Statements for Not-for-Profit Entities. Pending FASB approval, we should expect an Exposure Draft, available for public comment, to be issued by mid-April.
Overall, the financial reporting project to date has been primarily focused on simplifying the net asset classification requirements and improving the information provided in the financial statements and notes about liquidity, financial performance, and cash flows. The ultimate aim of the FASB’s actions includes improving the comparability of financial information between NFPs. One significant change that could impact operating results is the elimination of the option to release donor-imposed restrictions over an asset’s estimated useful life, a common practice among Not-for-Profits. While we anxiously await the issuance of the exposure draft, the FASB has issued a fairly comprehensive list of tentative board decisions that have been reached to date, which include:
Ultimately, Not-for-Profits need to be aware that significant changes are coming – the most significant since FASB’s SFAS 116 and 117 were issued more than 20 years ago. Organizations should be proactive in reviewing the exposure draft when issued, and provide feedback to the FASB as appropriate. While change isn’t always easy, NFPs should take solace in that these changes will ultimately increase comparability among their peers, and allow for more meaningful financial statements.
Follow the tentative board decisions reached to date.
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