On April 22, an FASB exposure draft was released which outlines major changes to financial statements for not-for-profits such as Health Care, Hospitals, Universities, and Charities.
The changes to each financial statement are below:
Statement of financial position — Change from three net asset classification of unrestricted, temporarily restricted and permanently restricted to two – without donor restrictions and with donor restrictions.
Statement of activities — Requirement to present a uniform measure of operations whether resources are from or directed at carrying out a not-for-profits mission. There will also be transfers to and from operating activities to nonoperating activities (investing and financing) shown on the face of the statement.
Statement of functional expenses — All not-for-profits will be required to show expenses by function either on the statement of activities, separate functional statement or a schedule in the footnotes. This will separate expenses by program and management and general and fundraising.
Statement of cash flows — The direct method of cash flows will be required showing cash receipts and payments tied to operating, investing and financing activities. It will also reclassify how some items are shown on the cash flow statement within the three activities.
Footnotes — Increased disclosures discussing the entities liquidity.
As you can see by this brief summary, the changes are major. The data needed to be captured for the financial statements will be a big undertaking. We strongly encourage all not-for-profits to pay attention to this proposal and start considering ways to implement. The exposure draft is open for anyone of the public to comment on until August 20. A summary of these changes by the Journal of Accountancy can be viewed here.
As always, Spire Group is available to help or answer any questions you may have.