FASB Continues Deliberations on Nonprofit Financial Reporting

In a recent meeting of the Financial Accounting Standards Board (FASB) on February 26, the Board continued discussion and deliberations surrounding their Not-for-Profit Financial Reporting-Financial Statements project. The Board reached tentative decisions in two main categories.

Presentation of Revenue, Expenses and Other Changes in Net Assets

Based on their prior deliberations, the FASB Staff (Staff) presented the results of their outreach and research on alternatives for financial presentation for not-for-profit organizations (NFPs). The following tentative decisions were reached:
  • The Board will continue to allow NFP entities the flexibility to present revenues, expenses and other changes in net assets using a one- or two-statement approach in their financial statements.
  • With limited exceptions such as for business-oriented healthcare entities, NFPs would be required to present an intermediate measure of current operations. The Board directed Staff to undertake additional outreach with stakeholders from the healthcare industry to determine if the intermediate measure would be helpful and useful to them, as well, or if it is more analogous to their current performance indicator.
  • NFPs reporting an intermediate measure of operations would no longer be required to report that measure in a statement that also reports the change in unrestricted net assets for the period.  This would allow NFPs to present a statement of current operations in the future.
  • NFPs would not be required to report a specific subtotal before the intermediate measure of current operations.
Presentation and Disclosure of Investment Expenses

Currently, NFPs are allowed to show investment expenses on the face of their financial statement’s net of investment expenses. This provides NFPs the opportunity to show net investment return with disclosure of investment expenses in the accompanying notes.  Since there is much diversity in how NFPs currently report these expenses, Staff presented the Board with several alternatives on how investment expenses might be presented in the financial statements. As a result, the FASB reached the tentative decision that NFP entities would be required to include a net presentation of investment expenses against investment return on the face of the statement of activities, with the types and amounts of investment expenses disclosed in the notes to the financial statements.

The Board also discussed extensively the question of what qualifies as an investment expense. The Board directed the Staff to conduct additional research on what types of investment-related fees and other investment expenses would be required to be disclosed as investment expense.

As noted, all the decisions above should be considered tentative, and the Board will be revisiting them alongside all other tentative decisions that were previously made during the Not-for-Profit Financial Reporting-Financial Statements Project prior to the release of an exposure draft for public comment later this year.

For more on the FASB’s deliberations process, please see our previous posts on the topic, and stay tuned to the blog for more updates.