OUR THOUGHTS ON:

Potential Changes Coming to the Presentation of Not-for-Profit Expenses

Not-for-Profit

By Patrick Kerns

The Financial Accounting Standards Board (FASB), with the assistance of the Not-for-Profit Advisory Committee (NAC), has been busy at work over the past several months deliberating changes to the presentation of the financial statements of not-for-profit organizations. The FASB has tentatively ruled that all not-for-profit organizations must present information that details both function and natural expenses classifications within an entity’s financial statements.

Currently, only voluntary health and welfare entities are required to present their expenses in this manner. This change by the FASB, if adopted, would apply to all not-for-profit organizations.

The FASB believes that this change would “increase the relevant and usefulness of those statements.” The FASB further noted that, currently, many organizations already prepare and present this information on the statement of activities or within the accompanying footnotes based upon research done in conjunction with this proposal. As a result, the FASB believes that there would be a limited cost burden on entities.

Within the current proposal, there are two different disclosure options, including presentation within a separate statement or within the accompanying notes in a matrix format. The current proposal does include the recommendation that all types of expenses, operating and non-operating would be included in the disclosure; however, non-operating expenses would not be required to be functionalized.

As we have seen over the past several years, the FASB and the NAC are discussing changes that would help the readers of not-for-profit financial statements make better informed decisions on organizations liquidity, financial results and cash flows. This is just one element toward fulfilling that goal.

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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.

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