FASB Board Discusses Potential Updates to NFP Expense Report Requirements
For prior updates on the FASB’s deliberations on NFP reporting requirements, please see our posts here and here.
On December 18th, the Financial Accounting Standards Board continued deliberations and tentatively decided to improve the reporting of expenses for all not-for-profit entities (NFPs). What originally brought this issue to the Board as part of its FRP (Financial Reporting Project) was a key dilemma wherein NFP Voluntary Health and Welfare Organizations were not consistently reporting functional expenses—mostly due to the fact that it was difficult to determine whether a given organization met certain criteria. Additionally, many stakeholders felt as though the requirement for a statement of functional expenses might be extended to all NFPs.
Embedded in this view is the more fundamental question of whether all NFPs should be required to report expenses by function, by nature or both. As part of the Board’s tentative deliberations, it discussed whether to require the matrix-formatted statement. Should it be required, the Board also discussed whether it should provide flexibility in terms of how NFPs disclose information regarding their use of resources. The following are the tentative decisions made by the FASB Board for reporting of expenses by all NFPs:
1. NFPs would be required to report expenses by their nature. The requirement to report expenses by function would be retained.
2. NFPs would continue to be allowed the flexibility to present expenses by function, nature or both on the face of the statement of activities or within the notes.
3. NFPs would be required to provide an analysis of all expenses by function and by nature in one of the following locations: in the statement of activities, in a separate statement of expenses (currently called a statement of functional expenses) or in a schedule in the notes. That analysis would include all expenses, both operating and non-operating, and would neither require nor preclude functionalization of non-operating expenses. Although this analysis would typically be provided in the form of a matrix, that specific format would not be required.
For voluntary health and welfare organizations that are currently required to present expenses by function and by nature in a matrix format in the statement of functional expenses, the decisions reached would allow them the same presentation and disclosure flexibility as other NFPs in how they communicate this information.
As further developments surrounding these tentative decisions unfold in the months ahead, stay tuned to the Nonprofit Standard as we continue to bring you the latest updates and insights.