FASB Drops "Other Communications" From NFP Agenda
February 6, 2014
On January 29, the Financial Accounting Standards Board (FASB) voted to remove the "Not-for-Profit Financial Reporting: Other Financial Communications" (NFPOFC) project from its research agenda. The need for NFP entities to "tell their story" was identified during the inaugural meeting of FASB's NFP Advisory Committee (NAC) in 2010.
Although Board members acknowledged that the topic of other financial communications, such as Management's Discussion and Analysis (MD&A), holds significant interest for many in the NFP sector, their decision was, in part, guided by a 2013 survey completed by more than 100 members of FASB advisory groups and other stakeholders. The Board prioritized and removed several projects during the meeting in an effort to direct resources to financial reporting issues that stakeholders believe are the most important.
In 2011 a NAC subgroup began discussing how an NFP entity might tell its story. At that time, it was noted that balance sheets and other financial statements alone do not effectively reflect the performance of NFP organizations or "tell their story" about their mission, operating environment, or concerns about future financial performance.
The NAC subgroup's main recommendation was that the FASB develop an MD&A section to accompany NFP financial statements. The group thought such a section would help a reporting entity explain its financial results and lead to greater transparency in NFP financial statements. The subgroup looked into guidance for MD&A provided by the SEC, the GASB, and the IASB to provide background for developing a framework for such a section, noting that many NFPs already provide some form of MD&A in annual reports and other communications but the quality and content of such reporting vary widely. The subgroup's suggested framework included four sections: an overview, financial health, operations, and liquidity. The majority of subgroup members suggested this section be required supplemental information.
As a result of the NAC's work and advice, in late 2011 the Board added a formal research project (NPOFC) to FASB's agenda. Formal meeting agenda time was given to the research project at every NAC meeting between 2011 and 2013. During a FASB meeting in May 2013, the Board decided to issue a "discussion paper" on NPOFC to coincide with the planned release of an Exposure Draft (ED) on the "Not-for-Profit Financial Reporting Model: Financial Statements Project." The intent was to gather feedback on NPOFC from NFP constituents who would also be studying the ED on NFP financial statements. Removal of the NPOFC Project from the research agenda eliminates a discussion paper that NFP preparers would also have to focus on when the ED is released.
Public higher education institutions follow accounting standards issued by the Governmental Accounting Standards Board and already produce an MD&A, which is required supplemental information, in their external general purpose financial statements. The FASB's decision to remove NPOFC from its agenda ensures another difference in financial reporting remains between independent (NFP) and public colleges and universities.
This is the sixth web article in a news series covering FASB decisions related specifically to NFPs. The ED on the "Not-for-Profit Financial Reporting Model: Financial Statements Project," (referenced above) is expected to be issued before the fourth quarter of 2014. A NACUBO webcast on Tuesday, April 8, 2014, will cover FASB NFP decisions and related issues, registration should be open by mid-February.
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