Not for Profit Financial Statements

For those in the NFP world the title of this blog probably grabbed your attention right away. For those in the for profit business world, if you have read this far, you are probably giving me another sentence or two to tell you why this matters to you. One reason you should care is because many of you are already or will be asked someday to serve in a governance capacity of a NFP. You may be asked to serve on the financial committee or even the board of a community NFP. When they ask, they are assuming, because you are a CPA, you know all the important details about NFP accounting, which we all know can be very different from accounting in the for profit sector. If that is not enough, then how about looking at the FASB’s proposal for changes to NFP financial statements as a preview of what might be coming when they reengage their efforts on for profit financial statements.

The major changes proposed by the FASB include:

  • A change in the focus on “operating activities” from ongoing major and central to the entities operations to a focus on mission and availability.
  • A change from the current three net asset classifications to two – donor unrestricted and donor restricted.
  • Several changes to the statement of cash flows including
    • a requirement to use the direct method of reporting operating cash flows
    • moving cash payments to acquire PP&E to operating cash flows
    • moving dividends and interest received to investing activities rather than operating

The cash flow changes could especially be a preview of things to come from the FASB in the for profit world. When the standard requiring the statement of cash flows was initially released the FASB the “preferred” method of presenting operating cash flows was the direct method, but the Board “allowed” use of the indirect method. With almost all companies using the indirect method, members of the FASB have made public comments that they might need to require the use of the direct method in order to get the preferred method to be used.

The comment period ends August 20, 2015 so if you have strong feelings on any of these matters participate in the process and send your comments from the FASB.

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