This is a follow-up to an Insight posted on July 1, 2013 titled “Not-for-Profit Financial Statements Project Update,” which discussed a project by the FASB to improve financial reporting of not-for-profit entities by reexamining not-for-profit entities existing standards for financial statement presentation.
What has happened in the last few months?
During the September 3, 2013 meeting, the FASB decided to:
- Replace the existing requirements to present 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 decided to make conforming changes to the terminology and definitions of the net asset classes.
- 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.
- Require disclosure of information about the amount and purposes of board designations of net assets without donor-imposed restrictions.
At the FASB’s latest meeting on October 23, 2013, the Board 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 (indirect method). They also discussed revising the cash flow categories to better align them with the tentative decision for an intermediate measure of operations. The Board agreed such revisions are desirable and decided that they would include:
- Cash gifts with donor-imposed restrictions that they be used to purchase, construct or otherwise acquire long-lived assets for operating purposes would be classified as inflows from operating activities, rather than as inflows from financing activities.
- Cash payments to purchase, construct or otherwise acquire long-lived assets for operating purposes would be classified as outflows from operating activities, rather than as outflows from investing activities.
- Cash dividends and interest income would be classified as inflows from investing activities, rather than as inflows from operating activities.
- Cash payments of interest expense would be classified as outflows from financing activities, rather than as outflows from operating activities.
What does this mean for not-for-profit’s in the near future? You can expect your financial statements to look significantly different than the way they look today, and hopefully, they will be more meaningful to management and the users of those statements. The FASB expects to have an exposure draft in the first half of 2014. You can monitor the activity of the FASB by going to www.fasb.org, or you can contact a Schneider Downs representative.
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