Financial Statements of Not-for-Profit Entities

Tentative FASB Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative, do not change current accounting and may be changed at future Board meetings. Official positions of the FASB are determined only after extensive due process and deliberations.

At its October 8, 2014 meeting, the FASB staff provided the Board with a summary of the tentative decisions reached to date and its analysis of the potential benefits, costs and complexities of the proposed changes as part of the Financial Statements of Not-for-Profit project. The staff noted that at a recent Not-for-Profit Advisory Council (NAC) meeting, that although NAC members generally supported the proposed changes, the members raised significant concerns about the cost and complexity of proposed changes in two areas: (1) capital-like transactions and (2) board designations, appropriations and similar transfers (collectively referred to as transfers). The NAC encouraged the Board to consider whether one or more cost-effective alternatives could be implemented without a significant reduction in the benefits of the information.

Capital-Like Transactions

The Board revised its previous decisions on capital-like transactions. The Board decided to require the following treatment of capital-like transactions:

  1. An NFP would report gifts of long-lived assets without donor restrictions as operating revenue. If the NFP places the asset in service (instead of selling it), the NFP would also report a transfer out of operations for the entire amount of the gifted long-lived asset. Unlike the Board’s previous decision, there would be no transfers back into operations in subsequent periods.
  2. Gifts of cash that a donor has restricted for the acquisition or construction of long-lived assets would initially be reported as revenues that increase net assets with donor restrictions, which are reported outside of operations. When the asset is placed in service, the release of the donor restriction would be reported as an increase in net assets without donor restrictions within operating activity and a decrease in net assets with donor restrictions. That amount would also be reported as a transfer from operations to nonoperating activities, which is consistent with the treatment of gifts of long-lived assets, and there would be no transfers back into operations in subsequent periods.

Board Designations, Appropriations and Similar Transfers

To address concerns about the degree of flexibility, the Board decided to require that NFPs present (1) all transfers in a separate, discrete section and (2) a subtotal of operating revenues and expenses before such transfers, which is in addition to the previous decision to require a subtotal after such transfers. At a minimum, an NFP must present the aggregate of transfers out of operating activities separate from the aggregate of transfers into operating activities. Unless the NFP chooses to display all transfers as discrete line items on the face of the statement of activities, the NFP would need to provide details for aggregated transfers in a note. All NFPs would be required to describe qualitatively the purpose, amounts and types of transfers (for example, those done because of standing board policies, as one-time decisions, or for other reasons).

Next Steps

Board members were asked whether they had any other concerns about the benefits, costs or complexities of other decisions that require further research by the staff. None were noted.

The Board directed the staff to proceed in drafting a proposed Update that will be subjected to an external review. The Board will then consider any further feedback, the proposed transition provisions and any additional sweep issues that arise in drafting. The Board also will consider the overall benefits, costs and complexities and decide whether to issue the proposed Update for public comment, and if so, determine the length of the comment period.

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