The Financial Accounting Standards Board (FASB) is working on a proposal that would make substantive changes to not-for-profit financial statement reporting.* The FASB’s objective is to improve net asset classification requirements and the information provided in the financial statements and notes about liquidity, financial performance, and cash flows. This initiative represents the first effort to update the fundamental reporting model for nonprofit entities in more than 20 years.
In its initial redeliberations of the proposal in December 2015 following a comment period on the exposure draft, the Board decided not to require organizations to use the direct method of presenting operating cash flows. Use of either the direct or the indirect method would continue to be allowed. Additionally, nonprofits choosing to use the direct method would no longer have to provide the indirect reconciliation.
The Board affirmed its original proposals that would require nonprofits to:
- Present only two net asset classifications: net assets with donor-imposed restrictions and net assets without donor restrictions
- Disclose the amounts and purposes of board-designated net assets on the face of the financial statements or in the notes
- Classify the entire amount by which endowment funds are “underwater” within net assets with donor restrictions rather than within the unrestricted category
- Disclose certain information with respect to underwater endowment funds, including the organization’s policy to either reduce expenditures or not spend from underwater endowment funds, the aggregate fair value of underwater funds, the aggregate original endowment gift amount or level required to be maintained (by donor stipulations or by law), and the aggregate amount of the deficiencies
* Presentation of Financial Statements of Not-for-Profit Entities