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NFP Reporting Exposure Draft, Explained: Other Matters

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Exposure Draft, Explained

The fourth and final installment in our series, NFP Reporting Exposure Draft, Explained, focuses on various other changes being proposed related to the financial reporting for not-for-profit (NFP) organizations.

As a reminder, all of the proposed requirements presented in the Exposure Draft are tentative until a final Accounting Standards Update is issued.

Management of Liquidity

Current Guidance

Currently, an NFP’s liquidity is primarily presented by the sequence of assets and liabilities on the statement of financial position. Cash, investments, and contributions receivable restricted for long-term purposes, such as endowment funds or investment in capital assets, are required to be broken out separately.

While some NFPs present a classified statement of financial position, breaking out all current assets and liabilities from noncurrent balances, this is required for only business-oriented healthcare entities. The current guidance also requires relevant information about the nature and amount of limitations on the use of cash and equivalents to be presented on the statement of financial position or in the notes.

Proposed Guidance

Except for minor changes in wording, the Exposure Draft leaves the current guidance unchanged but adds additional enhanced disclosure requirements. The Exposure Draft includes provisions that would require NFPs to disclose information on how liquidity is managed and quantitative information about assets available to meet near-term demands for cash.

The Financial Accounting Standards Board (FASB) intends for the enhanced disclosures to provide additional information on the financial flexibility of the NFP and the methods used to manage liquidity. The enhanced disclosure would require the NFP to identify the time horizon used to assess immediate cash needs — such as 30, 60 or 90 days — and would include:

  • The total amount of financial assets
  • Amounts not available to meet cash needs within the self-defined time horizon
  • The total amount of financial liabilities due within the self-defined time horizon

The example of the quantitative disclosure provided in the Exposure Draft is presented below:

Financial Assets$229,200.00
       Contractual or donor-imposed restrictions making assets                                  unavailable within 60 days ($192,413.00)
       Quasi-endowment fund          ($34,628.00)
       Financial assets available within 60 days$2,159.00
Financial Liabilities 
       Financial liabilities due within 60 days$1,845.00
       Net financial assets in excess of financial liabilities, within 60 days$314.00

The enhanced disclosures would also require qualitative information about the NFP’s strategy for managing liquidity risks, its policies for establishing liquidity reserves and the basis for the time horizon described above.


Presentation of Expenses

Current Guidance

Current guidance requires voluntary health and welfare entities to present expenses by their functional classes — such as program, fundraising, and management and general — as well as by their natural classes — such as salaries, supplies and depreciation — in a statement of functional expenses. All NFPs are required to report expenses by their functional classification either on the face of the statement of activities or in the notes but are not all are required to report expenses by natural classification.

Proposed Guidance

The FASB is proposing that all NFPs present operating expenses by both their functional and natural classifications. Nonoperating expenses would be neither required nor precluded from being reported by function. Information about all expenses would be required in one section, but that section could be on the face of the statement of activities, as a schedule in the notes, or in a separate statement.


Expiration of Restrictions: Long-Lived Assets 

Current Guidance

There are two alternatives for reporting the expiration of restrictions on contributions restricted for the acquisition or construction of long-lived assets. One alternative is the placed-in-service approach, wherein the contribution is released from the donor-imposed restriction once the asset is placed into service by the NFP. Under the second alternative, an NFP releases the donor-imposed restriction over the estimated useful life of the asset.

Proposed Guidance

The proposed guidance would require all NFPs to use the placed-in-service approach, eliminating the option to release the donor-imposed restriction over the useful life of the asset. The FASB believes this change would improve comparability and usefulness of the proposed intermediate measures of operations, discussed in a previous installment in this series.


Reporting Investment Income

Current Guidance

Current guidance allows an NFP to report investment revenues net of related expenses, as long as the amount of the expenses is disclosed on the statement of activities or in the notes. NFPs may also report investment revenues gross and report investment expenses with its other expenses.

Proposed Guidance

Under the proposed guidance, investment income would be reported net of external and direct internal investment expenses. NFPs would not be required to disclose information about investment expenses, except for any internal salaries and benefits that are netted against investment return. The objective of this proposed change is to improve comparability across all NFPs and avoid additional costs of obtaining information on all investment fees, such as embedded fees.


Additional Resources

Since the issuance of the Exposure Draft in April 2015, the FASB has issued three Q&As — May 2015, June 2015 and July 2015 — related to the proposed Accounting Standards Update. The Q&As provide clarification on certain provisions in the Exposure Draft, as well as additional insight on the FASB’s objectives behind some of the changes.

In addition, the FASB provided a concise summary of the Exposure Draft in the April 2015 issue of FASB In Focus.


Public Comment

The Exposure Draft offered a 120-day comment period, set to expire on Aug. 20, 2015. While the Exposure Draft included 22 questions for consideration by respondents, the FASB invites individuals and organizations to comment on all matters presented in the Exposure Draft. Comments may be submitted through the FASB’s website, by email to, or by sending a letter to Technical Director, File Reference No. 2015-230, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.

About the Author
Amanda Horvath is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group. Amanda provides a wide variety of services, including financial statement audits, reviews and consulting projects involving compliance, and internal control issues. Connect with her on LinkedIn.

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