FASB Releases Proposed ASU to Change Not-for-Profit & Health Care Entities’ Presentation of Financial Statements

Written by Linda Marie Pearson, CPA, CFE, Principal

On April 22, 2015, the Financial Accounting Standards Board (FASB) released a Proposed Accounting Standards Update (ASU), Not-for-Profit Entities and Health Care Entities: Presentation of Financial Statements of Not-for-Profit Entities.  This proposal will be available for public comments through August 20, 2015. The proposed ASU’s purpose is to provide better information to donors, creditors, and other users of the financial statements. The main provisions would require a not-for-profit (NFP) to:

• Replace the use of the current net asset classifications (unrestricted, temporarily restricted, and permanently restricted) with two net asset classifications (net assets with donor restrictions and net assets without donor restrictions).

• The presentation of net assets on the statement of financial position and statement of activities would be using the two proposed classes of net assets, rather than the currently required three classes.

• Present on the face of the statement of activities two additional amounts (subtotals) of the operating activities that are associated with changes in net assets without donor restrictions. The subtotals are to provide information related to the resource of the inflows and outflows of the organization as it relates to carrying out its purpose.

• Present the statement of cash flows using the direct method of reporting.

• Various changes to the classification of cash flows between operating, financing and investing. These specific changes would result in differences between how a for-profit organization and a not-for-profit organization presents certain cash flows.

• Several new disclosures including information related to the management of liquidity and quantitative information as of the reporting date about the financial assets available to meet near-term demands for cash, including demands resulting from near-term liabilities.

The main provisions would eliminate some existing requirements, such as:

• Business-oriented health care NFP’s will no longer to be required to present the performance indicator.

• Voluntary health and welfare organizations would no longer be required to provide a statement of functional expenses; rather, they could provide such information about expenses on the face of the statement of activities, as a separate statement, or in the notes to the financial statements.

• NFP’s are no longer required to separately disclose the amount of investment expenses.

As this is a summary of the many proposed changes, we recommend reading the proposed ASU to learn all the changes. The effective date, and whether it can be adopted early, will be determined by FASB after considering the feedback received on this proposal.

Should you have any questions or would like to discuss the potential impact on your organization, please call me directly at 401-752-0566.