Potential Accounting Changes for Tax-Exempt Entities

By Baker Newman Noyes April 30, 2014

Last month the Not-for-Profit Advisory Committee (NAC), a sub-committee of the FASB, held a meeting in which they discussed several financial reporting items of relevance to not-for-profit entities (NFPs). The discussions focused on several items related to the Financial Statements of NFPs Project.

The Financial Statements of NFPs Project has been in process for a while now and is FASB’s attempt to improve financial reporting and related disclosures for NFPs going forward. Of the changes proposed to date, NAC members have expressed some concern over excluding interest expense and including gifts of capital assets in the proposed intermediate measure of operations. Some members also believe that an analysis and disclosure of expenses by both function and nature should be required for all organizations while others expressed concern that this might lead to overuse and misapplication of expense ratios.

Another topic under this project is focused on the NFP-specific disclosures that are currently required in the notes to financial statements. The following are suggestions that were given by NAC members in order to streamline the notes and improve overall financial statement readability:

1. Eliminate or combine the fair value levels
2. Combine the investment, endowment, and fair value disclosures into one note
3. Enhance liquidity disclosures
4. Include greater detail on the policy choices of management
5. Include greater detail on property, plant and equipment, which might include disclosing additions and disposals rather than a net presentation
6. Include more specific information about the tax-exempt status (private foundation, public charity, etc.)
7. Include cost allocation basis and rationale

No final decisions were made on the above items but consensus in the meeting seemed positive.

The FASB and NAC also discussed the FASB’s new simplification initiative and the process that FASB will take. The NAC discussed some of the suggestions which included eliminating or simplifying pledge discounting and streamlining credit quality disclosures for student and other program type loans. Both of these items could help simplify NFPs’ financial reporting requirements.

While no final decisions have been made on these matters, it appears that the talks are promising for changes which would help improve the NFP financial reporting process. You may visit the NAC website here for more information.

For more information on this topic contact Jeff Skaggs or your BNN advisor at 1.800.244.7444.