On December 11, 2015, the Financial Accounting Standards Board (FASB) discussed the following issues in Phase 1 of redeliberations of the proposed FASB Accounting Standards Update, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities (the proposed Update):
Methods of Presenting Operating Cash Flows
The Board decided not to require not-for-profit (NFP) entities to use the direct method of presenting operating cash flows, but instead to continue to allow them to use either the direct method or indirect method. Further, the Board decided to no longer require the indirect reconciliation if an NFP chooses to use the direct method.
Net Asset Classification Scheme and Related Issues
The Board made decisions on the following issues:
1. Requirement of two classes of net assets
- The Board affirmed its proposal to combine temporarily and permanently restricted net assets into net assets with donor restrictions and to rename unrestricted net assets to net assets without donor restrictions. Consistent with the proposed Update, this alternative would retain the current generally accepted accounting principles (GAAP) requirement to provide relevant information about the nature and amounts of donor restrictions on net assets (either on the face of the statement of financial position or in the notes).
2. Disclosure of amounts and purposes of board-designated net assets
- The Board affirmed its proposal to require the disclosure of the amounts and purposes of board-designated net assets either on the face of the financial statement or in the notes.
3. Classification and disclosure of underwater endowments
- The Board affirmed its proposal to require that the aggregate amount, by which endowment funds are underwater, be classified within net assets with donor restrictions rather than the current unrestricted category.
- The Board decided to affirm its proposal for endowment funds that are underwater, if any, to require the disclosure of:
- The NFP’s policy to either reduce expenditure or not spend from underwater endowment funds.
- The aggregate fair value.
- The aggregate original endowment gift amount or level required by donor stipulations or by law to be maintained.
- The aggregate of the amount of the deficiencies.
4. Requirement of placed-in-service approach and elimination of over-time approach for expirations of restrictions to acquire or construct long-lived assets
- The Board affirmed its proposal to require, in the absence of explicit donor instructions, the placed-in-service approach for expirations of restrictions to acquire or construct long-lived assets, thus eliminating the over-time approach.
Information Useful in Assessing Liquidity
The Board discussed the proposal for providing qualitative and quantitative information useful for assessing liquidity and potential alternatives. The Board directed the staff to explore an approach that would require, like the proposal, qualitative information about how the NFP manages its liquidity and liquidity risks, but provide alternative ways of presenting quantitative information. This approach would emphasize information about assets that are liquid and available at the balance sheet date.
Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.
As a leader in serving the NFP industry, Sikich is commiteed to keeping you informed and up-to-date on matters affecting you. If you have any questions or need more information on these or any other NFP issues, please contact one of our NFP executives.