FASB Proposes New Reporting Requirements for Not-For-Profit Organizations

Business people reviewing a report on a tablet.

The FASB recently issued a proposal for public comment in regards to enhancing the usefulness of not-for-profit financial statements. The proposed Accounting Standards Update, or ASU, contains enhancements to the fundamental not-for-profit reporting model that has been in effect for over 20 years. The FASB took on this project in 2011, after receiving feedback from Not-for-profit Advisory Committee members. While the NAC believed sound accounting standards for financial statements already exist, they also believed that the standards could be updated to provide better information to donors, creditors and others.

The recommended enhancements would result in changes to the following items:

  • The current net asset classification scheme

  • The information required in regards to an organization's liquidity, financial performance, and cash flows

  • A reduction in the number of net assets classes presented (from three to two) - assets would be conveyed as those with donor imposed restrictions and those without

  • All not-for-profits would be required to reports expenses by both their nature and their function

FASB member Tom Linsmeier believes the benefits of the new proposed reporting requirements outweigh the costs. FASB will be providing an opportunity for the not-for-profit community to tell their story far better than it is being told now.

FASB Chairman Russell Golden believes some of the aspects of the new proposal will reduce costs, promote simplification, and provide additional benefits for not-for-profits. However, his concern lies in the overall complexity of the proposed system. He's also concerned that some of the proposed items address conditions that are not solely not-for-profit issues.

Although there is no guarantee the proposed ASU will become the new accounting standard for nonprofits, it’s a good idea to be aware of possible changes to come. For more information on the Proposed ASU please read FASB in Focus or visit www.fasb.org.