FASB Not-for-Profit Advisory Committee Makes Recommendations
October 19, 2011
The Not-for-Profit Advisory Committee (NAC), an advisory group to the Financial Accounting Standards Board (FASB), has recommended changes intended to enhance reporting and communication of financial results to interested parties. The NAC is a standing resource group to the FASB. The committee has higher education representation and consists of preparers, auditors, and users of not-for-profit financial information.
The NAC was established in October 2009 to provide input on existing accounting guidance, current and proposed technical agenda projects, and longer-term issues affecting not-for-profit organizations. The committee was charged with assessing the effectiveness of a not-for-profit reporting model in use since the mid-1990s. Over the past year the NAC was divided into three subcommittees that studied issues related to financial measurement, communication, and liquidity. The work of the subcommittees factored into NAC meeting discussions held in February and September of 2011.
Key recommendations advanced by the NAC include:
- Revisiting current net asset classifications, and how they may be relabeled or redefined. The hope is that enhanced net asset classifications will improve how liquidity is portrayed and clear up current confusion concerning restrictions and the definition of unrestricted net assets.
- Improving the relationship between the statements of activities and cash flows. The objective is to more clearly communicate financial performance through these two statements. One of the recommendations includes a measure of operations in the statement of activities.
- Creating a framework to provide commentary and analysis about an organization’s financial health and operations. The framework would be similar to the “Management Discussion and Analysis” currently provided in the annual reports of publicly traded companies. The goal is to bring context to the not-for-profit entity’s financial story.
- Streamlining, where possible, existing not-for-profit-specific disclosure requirements to improve their relevance and clarity. This could include identifying current disclosure requirements that might be better suited for the proposed commentary and analysis section. Such a recommendation is consistent with the FASB’s goal of reducing financial reporting complexity in general and with the objectives of the FASB’s current disclosure framework project in particular.
The NAC also identified some educational efforts that could be carried out by the FASB staff, the NAC, or other organizations (e.g. NACUBO, AICPA, etc.). Such efforts would be directed at highlighting how not-for-profit organizations can improve their financial reporting in ways that are currently permitted under existing Generally Accepted Accounting Principles requirements. As a result of the NAC’s work, FASB staff will prepare an agenda request for the FASB Chairman to add one or more projects to their agenda.
NACUBO members can read more about the work of the NAC on the FASB web site.
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