Update on Not-for-Profit Financial Reporting: Financial Statements

Written by Patrick A. Meyer, CPA, CFE

It has been 20 years since the Financial Accounting Standards Board (FASB) issued the current financial statement presentation format for not-for-profit entities. Currently, the Board is working on a project entitled Not-For-Profit Financial Reporting: Financial Statements, which intends to improve and simplify financial statements so they are more useful for readers, such as board members and donors.

Specific objectives of the Not-for-Profit Financial Reporting: Financial Statements project focus on improving or developing:

  • Net asset classification and terminology
  • Liquidity portrayal
  • More clearly communicated not-for-profit performance
  • Enhanced, relevant and clarified not-for-profit specific financial statement disclosures
  • A framework for commentary and analysis on operations and financial health

When the project began, FASB formed a 21 member resource group to begin planning implementation. Currently, the group has presented and received approval for its plan, scope and approach by FASB and the FASB Not-For-Profit Advisory Committee (NAC).

The group’s first task is to evaluate operating measures, which best measure financial performance as part of a not-for-profit entity’s financial statements. An example would be healthcare performance indicators as part of the healthcare industry’s financial statements.

The second task is to revisit net asset classification. This would include considering whether net assets should continue to be classified as unrestricted, temporarily restricted and permanently restricted or if there is a better classification. Some NAC members have expressed support for available or unavailable net assets.

There is also a task relating to the evaluation of the use of commentary and analysis (similar to a management discussion and analysis (MD&A)) currently being used in government accounting.

There are many challenges ahead of this group, such as how to define and measure performance, how might the statement of cash flows be improved, and what other statements or schedules should be required in a not-for-profit entity’s financial statements.

HBE Becker Meyer Love LLP will continue to provide updates on this project as it moves forward. You can also access updates and a summary of board decisions related to this project by visiting the FASB website. Should you have any questions, please feel free to give our office a call at 402.423.4343.

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