Financial Accounting Standards Board Votes on Not-for-Profit Proposal
- christian590
- Mar 5, 2015
- 3 min read
Not-for-Profit Proposal Moves Forward Despite Reservations
By Thomson Reuters Tax Accounting March 3rd, 2015
Significant financial reporting changes could be in store for universities, charities, museums, and other not-for-profit groups. With a 5-2 vote, the FASB agreed to release a proposal for public comment that would alter how not-for-profit organizations tell donors, creditors, and watchdogs how they spend and invest their money.
The FASB voted 5-2 on March 4, 2015, to release a proposal to overhaul how universities, charities, foundations, and other not-for-profit organizations convey how they spend and invest their money.
But the dissatisfaction with the proposed standard is even stronger than indicated by the dissenting votes from FASB Chairman Russell Golden and Vice Chairman James Kroeker. Two of the five board members who voted in favor of issuing the proposal did so with reservations.
The proposal, which calls for more transparency about not-for-profit groups' access to funds, their financial sustainability, and expenditures, is tentatively slated for an April release.
The accounting board wants comments submitted by July 31.
Golden said his chief concern was that the proposal would create too many reporting differences between not-for-profit organizations and for-profit businesses. While not-for-profit organizations have unique factors to consider when taking stock of their finances, such as restrictions on funds or donor relations, the changes the FASB is proposing go too far, he said.
"Not all of the decisions we've made in here are unique to not-for-profits. We just made them because we had a not-for-profit project available to make them in," Golden said. "And I don't think that's what we ought to be focused on."
Kroeker, who wasn't present at the meeting but voted by proxy, said in a prepared statement that he didn't agree with the proposed change to not-for-profit groups' cash flow statements.
The FASB wants not-for-profit groups to use the direct method of presentation, which calls for the separate reporting of cash receipts and payments tied to operating activities. Most groups use indirect presentation, which starts with net income, adjusts for all noncash transactions, and then makes a second adjustment for cash-based transactions. The indirect method is considered easier to follow, and the FASB has been warned that some groups will strongly object to a new method.
"The cost related to changes to the statement of cash flows and both changes to the direct method and classifications result in benefits that do not justify the costs," Kroeker said in his remarks.
FASB member Lawrence Smith also said he was concerned about the changes to the statement of cash flows.
"That being said, I didn't object to it and I voted for the changes made because I think when you look at two cash flow statements side by side, one under direct and one under indirect, it's pretty obvious the direct method conveys more easily understood information than indirect," Smith said.
He also praised the changes to the basic performance statement.
"Is there flexibility? Yes. There's flexibility up the wazoo in terms of how management designates things, but it's clearly laid out and that's the important thing," he said. "It clearly lays out what funds are available to an entity in terms of furthering its mission."
To better understand a group's access to its funding, the FASB wants assets to be classified as either unrestricted or restricted. Under current accounting, groups must select "restricted," "temporarily restricted," or "unrestricted."
FASB member Daryl Buck said he agreed with collapsing the three net asset classifications into two and reporting expenses by function and nature. But he said he was concerned that the proposed changes may fail to achieve their purpose of allowing donors and creditors to more easily make comparisons between different not-for-profit organizations.
"I think there's so much flexibility still, so the comparability may not be there," Buck said.
He acknowledged that there are so many kinds of not-for-profit organizations that making comparisons is rarely easy, but he said not-for-profit healthcare organizations, such as hospitals, are often compared to for-profit endeavors, "so I'm a little bit concerned."
FASB member Thomas Linsmeier expressed the most enthusiasm for the project. He said the proposal would provide new, better information for donors, creditors, and watchdogs to understand a not-for-profit organization's finances and stability.
"I think finding out what resources are made available from a current period of activities and how management has chosen to use those resources, either in the current period or future period, or having to find money to support the current period, other than from current revenues or fundraising, is a vital thing in understanding sustainability of a not-for-profit entity and the challenges they have going forward," Linsmeier said.
The FASB also wants to improve the statement of activities by including the presentation of an operating measure with information about expenditures related to the organization's mission and donated funds available to be spent.
Comentários