The FASB wants to give donors and watchdogs more information about how much access charities, universities, and other not-for-profit organizations have to their money.
The board at an education session August 27, 2013, discussed a proposal to require not-for-profit organizations to report their assets in two categories, restricted and unrestricted, and include more information in their ffinancial statement footnotes.
The proposal would change current U.S. GAAP, which requires organizations to report the amount of their net assets in three categories: unrestricted, temporarily restricted, or restricted by donor limitations.
“One of the concerns raised about collapsing the restricted classes into two is that we might lose some of the information, but it can be conveyed through the notes,” FASB senior project manager Ron Bossio said. “It might be more granular and improved information through the notes than what we currently do through the financial statement.”
The FASB does not make decisions at education sessions but the discussion prepares the board for future action. The FASB is scheduled to meet with its Not-for-Profit Advisory Committee September 9, when the standard-setter is expected to discuss the proposal in depth.
Access to funds is a key aspect of financial reporting for not-for-profit organizations. For example, museum enthusiasts may donate money to fund a new exhibit, while others may earmark donations for a new roof or building wing. Others may give money to a general fund that can be used at a museum’s discretion. This means that the museum may have a certain amount of funds on hand, but it can only use the money for specific purposes.
Changing how not-for-profit organizations report their assets on their balance sheets is part of a broader effort to improve financial reporting for these organizations.
The FASB in November 2011 announced that it would start such an effort, but discussions have not kicked into gear until recently.
The FASB’s Not-for-Profit Advisory Council has supported the move and identified several areas in which not-for-profit financial reports could be improved, including how information about an organization’s ability to get funding is presented on the balance sheet. Donors, regulators, and financial backers also want clearer information about an organization’s financial performance and more details in the financial statement footnotes.
Not-for-profit accounting guidelines were established in 1993 with the publication of SFAS No. 116,Accounting for Contributions Received and Contributions Made, (FASB ASC 958), and SFAS No. 117,Financial Statements of Not-for-Profit Organizations.
SFAS No. 117 requires all not-for-profit organizations to provide a statement of financial position, a statement of activities, and a statement of cash flows. It also requires classification of an organization’s net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions.
Each of the three classes of net assets – permanently restricted, temporarily restricted, and unrestricted – must be displayed in the statement of financial position and the amounts of change in each of the classes must be displayed in a statement of activities.
In August 2008, the FASB issued FASB Staff Position (FSP) No. FAS 117-1,Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds, (FASB ASC 958-205), which provides guidance on the net asset classification of donor-restricted endowment funds that are subject to the Uniform Prudent Management of Institutional Funds Act and included new required disclosures for all endowment funds, regardless of whether they’re covered by the law.