Not-for-Profit Reporting Model - Part 3: Measuring Performance

In Part 1 of our NFP Reporting Model series, we discussed FASB's proposed ASU on the presentation ot financial statements of not-for-profit entities and how this proposal could change the current three classifications of net assets from three to two.  In Part 2, we discussed the treatment of endowments without donor restrictions, commonly referred to as board-designated endowment or quasi-endowment fund.

The Financial Accounting Standards Board (FASB) issued an exposure draft on the financial statement presentation of not-for-profit (NFP) entities this past April, with comments on the exposure draft due in August 2015.  One new requirement for NFP financial reporting that is discussed within the exposure draft is the concept of performance measurement.

Accounting principles generally accepted in the United States do not currently require an NFP to report operating measures nor do they provide any definitions for operating measures.  If an NFP does report an operating measure, the definition likely varies among organizations, making it a challenge for users of the financial statements to compare performance and financial results.  Further, the manner in which operating activities are reported within a statement of activities conflicts with the definition of operating cash flows in the statement of cash flows. 

The Proposed Guidance Changes to FASB's ASU on the Presentation of Financial Statements of Not-for-Profit Entities Regarding Measuring Performance

Within the proposed guidance, in order to improve and standardize information presented in the financial statements and notes, there will be two subtotals on an NFP’s statement of activities associated with changes in net assets without donor restrictions that will distinguish current-period operating activities from other activities as follows:

  1. The first subtotal on the statement of activities will include operating revenues, support, expenses, gains and losses without donor-imposed restrictions.  This will aid management and governing boards with benchmarking their institution against peers within their industries.
  2. The second subtotal on the statement of activities will include the effects of internal transfers resulting from governing board designations, appropriations, and any similar actions that place/remove self-imposed limits on the use of resources that make them unavailable/available for current-period operating activities.  This will allow NFPs to be able to provide information about how the NFP’s operations are managed.

The FASB’s intent behind this new requirement is to provide a level of consistency in order for creditors, donors and other external users to be able to understand and assess financial performance of an NFP entity and make comparisons against other similar NFP entities. 

Contact us for more information regarding the FASB’s proposed guidance on performance measures and visit our not-for-profit services page to learn more about our industry group.

Read Part 1 of our NFP Reporting Model series about net asset classification.
Read Part 2 of our NFP Reporting Model series about the treatment of endowments.
Read Part 4 of our NFP Reporting Model series about measuring and disclosing liquidity.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Pell Grant Program Facing Shortfall
Administration’s 2025 Revenue Proposals – Potential Changes for Private Foundations
Not-for-Profit, Tax BY Sarah Piot
Not-For-Profit Tax Credit Opportunities Included in the Inflation Reduction Act
Audit BY Erin Puko-Wilking
2024 Audit Plan Hot Spots
2024 Policy Shifts: Essential Updates Every College Should Know
Update on GLBA for Higher Ed
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×