RubinBrown What Not-For-Profit Organizations Should Expect in 2015

FASB EXPOSURE DRAFT On April 22, 2015, the Financial Accounting Standards Board (FASB) issued an exposure draft, Presentation of Financial Statements of Not-for-Profit Entities , the accumulation of almost three years of work by the FASB. The objective of the original project was to reexamine existing standards for financial statement presentation by not-for-profit organizations, focusing on improving net asset classification requirements and information provided in the financial statements and notes about liquidity, financial performance and cash flows. As the existing standards have been around for more than twenty years, this fresh evaluation is being closely monitored by the sector. This exposure draft does not change how an organization accounts for transactions but proposes changes to the look of an organization’s financial statements, providing increased understandability and transparency to financial statement users. Key changes include: ∙ Reducing the number of net asset classes from three to two: 1) net assets without donor restrictions and 2) net assets with donor restrictions. This streamlines the presentation on the face of the financial statements but does not eliminate the requirement to track permanently and temporarily restricted net assets, which will still be disclosed in the notes to the financial statements. ∙ Revamping the statement of activities to include required operating measures based on mission and availability of resources. Giving each organization flexibility, a one or two page statement approach will be allowed. ∙ Requiring operating expenses to be presented by both nature and function. This can be done on the statement of activities, as a separate statement, or as a note disclosure. Additional footnote disclosures will be required describing the method used to allocate costs among program and supporting activities. ∙ Including information within the footnotes regarding the organization’s liquidity, including quantitative information about the availability of the organization’s financial assets to meet cash needs and when financial liabilities will be due, as well as qualitative information about how the organization manages liquidity. ∙ Requiring the statement of cash flows to be presented on the direct method. In addition, certain items will be recategorized to better align operations on this statement with the statement of activities. These recategorizations include reporting purchases and proceeds from the sale of property and equipment as well as any cash restricted for capital projects within operating activities, reporting cash received from interest and dividends within investing activities, and reporting interest paid on debt within financing activities. The exposure draft is open for comments until August 20, 2015 – all are welcomed and encouraged to share their thoughts, both good and bad, with the FASB. When the final standard will be issued and when implementation will start is still being determined by the FASB.

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