FASB: Nonprofit Advisory Committee

With the establishment of the Nonprofit Advisory Committee (the “NAC”) a few years ago, the Financial Accounting Standards Board (“FASB”) continues to examine financial reporting and its relevance to the not-for-profit marketplace.  Currently, there are a few projects on the agenda that, if seen to fruition, would have a fairly significant impact on the financial reporting practices in the not-for-profit sector.

FASB is currently evaluating whether to require all not-for-profits (“NPOs”) to reflect an operating measure in the statement of activities.  In addition, FASB is re-examining the current requirement for voluntary health and welfare organizations to present a statement of functional expenses, with an eye towards making the reporting of these expenses a requirement for all NPOs, although not necessarily in a proscribed format.

As the definition of what constitutes an “investment expense” has become less uniform, FASB is also considering a requirement to reflect these expenses net on the statement of activities, with a definition in the notes as to the components of these expenses.

The most dramatic project in terms of reporting impact remains FASB’s review of the concept of donor restrictions, and the consideration of collapsing the “permanently restricted” and “temporarily restricted” categories into a single “donor-restricted” category in the financial statements.

These projects are in early stages of discussion and much remains before they would be required in the marketplace.  However, it is not too early to begin conversations about the impact if adopted.