The Not-for-Profit Advisory Committee, 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. Key recommendations include the following:
- Reconsidering current net asset classifications and how they may be relabeled or refined to improve how liquidity is portrayed in a organization’s statement of financial position and related notes. This is intended to clarify terms such as “unrestricted net asset” that commonly cause confusion. This is a critical area for not-for-profits, since net asset classes are used to determine liquidity and liquidity risks.
- Improving the statements of activities and cash flows to more clearly communicate the not-for-profit’s financial performance. Recommendations address improving how information is aggregated and classified and creating better cohesiveness between financial statements. For example, committee members agreed that more clearly segregating and defining “operating” versus “nonoperating” activities, for example, would result in greater comparability in financial reporting.
- Creating a commentary and analysis framework, somewhat similar to the Management Discussion and Analysis provided by publicly traded companies in their annual reports, to help directors and managers provide context regarding the organization’s financial health and operations. Members felt that adding this section would help not-for-profits meet the accountability needs of donors and other interested parties.
- Streamlining existing not-for-profit-specific disclosure requirements to improve their relevance and clarity. This would include identifying current disclosures that might be better suited for the proposed commentary and analysis section.
The recommendations will be submitted to the FASB chairman in a formal agenda request and are expected to be discussed at a public meeting later this year.
More information about the Not-for-Profit Advisory Committee and its recommendations are available at www.fasb.org.
MCB has over 60 years of experience working with not-for-profit organizations on their accounting, audit, tax and compliance needs. Contact Kathy Flaherty for more information or to schedule a meeting to discuss your not-for-profit compliance requirements.