FASB’s Anticipated Exposure Draft on Changing the Not-For-Profit Financial Statement Model

On March 31, 2015, partners Candice Meth and Julie Floch presented a not-for-profit webinar titled “Understanding the Principles of the FASB’s Anticipated Exposure Draft on Changing the Not-For-Profit Financial Statement Model.”  The objective of the FASB’s exposure draft is to re-examine existing standards for financial statement presentation by not-for-profit entities, focusing on improving net asset classification requirements and information provided in financial statements and notes about liquidity, financial performance, and cash flows.  Below is a summary of the changes that are expected to be in the anticipated exposure draft.

The proposed changes to net assets classification would replace the current three classes of net assets with two classes of net assets: those with and without donor-imposed restrictions.  The proposed changes would also require disclosures for both with and without donor restrictions as to the nature and amount of board designations and donor restrictions.  For example, operating activities would include purchases, sales, and contributions restricted for property, plant, and equipment; investing activities would include cash received from interest and dividends; and financing activities would include interest paid on long-term debt.

The proposed changes to the cash flow would require the presentation of the cash flow under the direct method, whereas currently the cash flow can be prepared and presented either under the direct or indirect method.  In addition, there could be re-categorizing of components of the cash flow statement to better align operating information with the statement of activities.

The FASB’s exposure draft is expected by mid-April with a comment period ending on July 31, 2015; issuance of the final standard is still to be determined.

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