Stakeholders had a lot to tell the Financial Accounting Standards Board (FASB) about its exposure draft of not-for-profit financial statement presentation changes in 2015. In the fall, the FASB announced it would be segmenting its proposed changes to financial statements into two phases to make the changes more manageable.
Stakeholders raised other questions as well about accounting changes for not-for-profits, including how recent accounting standards updates would affect them and whether certain accounting alternatives that are available to private companies might also be used by the not-for-profit sector. The following provides a brief recap of the items on the FASB’s technical agenda that are specific to not-for-profit reporting.
Recent Updates on Financial Statement Presentation
The FASB met on March 2, 2016, to discuss its proposed Phase 1 updates to Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954). Members focused on disclosures about operating measures and the information that not-for-profit organizations should provide about their liquidity and resources.
Some not-for-profits choose to self-define their operating measure. The FASB decided that these not-for-profits would present their self-defined operating measure in their statement activities along with board designations, appropriations and other actions that affect their operating measure. The not-for-profit would report by asset type any internal transfers that affect their operating measure, either within the financial statement itself or as a disclosure.
Stakeholders had also raised concerns with the FASB about what not-for-profits will need to demonstrate in order to show their liquidity. The FASB made the decision to require the following two pieces of information:
- How the not-for-profit handles its cash requirements for general expenditures within one year of the balance sheet date (to be presented in the notes of the financial statement); and
- The availability of financial assets to meet the cash requirements for general expenditures within one year of the balance sheet date (to be presented in the financial statement or in the notes). When reporting this, the not-for-profit should consider how the assets are affected by donor restrictions, internal limits or the nature of the financial assets.
The FASB will also meet on March 30, 2016, to discuss transition provisions and the effective date of the accounting standards update.
For more information about the changes proposed to not-for-profit financial statement presentation, please see Not-for-Profits Brace for Enhanced Reporting Requirements.
Identifiable Assets in a Business Combination
U.S. Generally Accepted Accounting Principles (GAAP) requires entities to record the costs of acquired intangible assets in a business combination. The acquiring company must amortize these intangible assets over the assets’ useful lives in a period no greater than 40 years. Those assets in which a useful life cannot be determined can be reported at cost and not be amortized, but entities must test these assets annually for impairment. GAAP also requires that the costs of identifiable intangible assets be recorded separately from goodwill.
After hearing concerns from the Private Company Council (PCC), the FASB granted private companies an accounting alternative that allows them to absorb acquired intangible assets that are not capable of being sold or licensed independently into goodwill. This means that private companies do not have to record these intangible assets at fair value when using the acquisition method outlined in Topic 805.
Not-for-profit organizations and some public companies raised concerns that they, too, could benefit from the simplified method of accounting for intangible assets, and so the FASB added the consideration to its technical agenda. The FASB is evaluating the matter, and recently decided it would not make a decision about whether not-for-profits could use the private company accounting alternative until it decides whether public companies would be eligible to use the alternative as well.
Clarifying When a Not-for-Profit Should Consolidate a For-Profit Limited Partnership
Accounting Standards Update (ASU) 2015-02, Consolidation (Topic 810): Amendments to Consolidation Analysis asked that all entities consider the rules in Subtopic 810-10 to determine whether to consolidate a limited partnership for accounting purposes.
Stakeholders raised concerns with the FASB that the accounting standards update is written for limited partners and that as written, it applies to entities that are subject to the Variable Interest Entities (VIEs) guidance in Topic 810. Not-for-profits are not within the scope of VIE guidance, and so ASU 2015-02 does not provide a clear standard to follow for not-for-profits considering whether to consolidate.
The FASB added an initiative to its agenda to address this concern, and in the first months of 2016, began researching accounting alternatives that not-for-profits can use to assist with determining when they need to consolidate. On March 30, 2016, the FASB will meet to discuss findings from its outreach. Also on its agenda are discussions about whether reinstating prior guidance or aligning guidance with components of the variable interest entity model would be more appropriate.
Accounting Updates That Impact Not-for-Profits
Other recent accounting standards updates will have an impact on not-for-profits as well. In February 2016, the FASB released the long-awaited guidance on leasing. Although the rollout of the new standard begins in calendar year 2020, it is recommended that not-for-profits begin looking now at lease renewals and other arrangements in light of the guidance to prepare for the changes.
For More Information
If you have specific comments, questions or concerns about how the changing accounting regulatory landscape affects your organization, please contact us.
Heather Hernandez is a senior manager in the Not-for-Profit Practice of CBIZ MHM in the San Diego office. She can be reached at 858.795.2063 or email@example.com.