FASB Adds Two New Projects to Agenda

The Not-for-Profit Advisory Committee (NAC), an advisory group to the Financial Accounting Standards Board (FASB), has recommended changes in accounting rules that would enable not-for-profit organizations to better report and explain their finances to donors and other interested parties. The NAC's recommendations were submitted to the FASB chairman in a formal agenda request by the FASB staff. As a result, the FASB has added two new projects to its agenda which is aimed at improving financial reporting for nonprofits.

NAC's key recommendations included:

• Revisiting current net asset classifications, and how they may be relabeled or redefined, in conjunction with improving how liquidity is portrayed in a not-for-profit's statement of financial position and related notes;
• Improving the statements of activities and cash flows to more clearly communicate financial performance;
• Creating a framework for not-for-profit directors and managers to provide commentary and analysis about the organization's financial health and operations--somewhat similar to the "Management Discussion and Analysis" provided by publicly traded companies in their annual reports--to help the nonprofits describe in writing their own financial story; and
• Streamlining, where possible, existing not-for-profit-specific disclosure requirements to improve their relevance and clarity for the reader.

Of the two projects added to the FASB agenda, one involves standard setting and the other involves research. The standard-setting project will focus on the financial statements and related notes unique to nonprofits. It will "re-examine the existing standards for financial statement presentation by not-for-profit organizations with a focus on improving the current net asset classification scheme and information provided in financial statements and notes about an organization’s liquidity, financial performance, and cash flows."[1]

The research project will study other means of communication that nonprofit organizations currently use in telling their financial story. Specifically, the project will review best practices followed by nonprofits and how such communications enhance the understanding of donors, creditors, and other stakeholders about the financial health and performance of the organization. More information about the Not-for-Profit Advisory Committee is available at www.fasb.org.

By Eileen E. Brassil, CPA, Partner, ebrassil@legacycpas.com

[1] Cohn, Michael. "FASB Adds Nonprofit Projects to Agenda." Accounting Today. http://www.accountingtoday.com/news/FASB-Adds-Nonprofit-Projects-Agenda-60755-1.html?ET=webcpa:e1942:230645a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_111011. 9 Nov. 2011.