Tuesday, March 10, 2015

First Major Changes to Not-For-Profit Accounting


 
 
Anthony S. LaNasa, CPA, CFE
Principal at HW&Co.
 
On March 4th, 2015 the Financial Accounting Standards Board voted to release a proposal that will overhaul how universities, charities, foundations, and other not-for-profit organizations convey how they spend their time and how they invest their money.  With this decision came some dissatisfaction with this standard. The uneasiness that came from the decision is even stronger than anyone had initially thought.  This was especially conveyed by the dissenting votes of FASB Chairman Russell Golden and Vice Chairman James Kroeker. It should also be mentioned that two of the five board members who voted in favor of the proposal did so with reservations.
 

The chief concern that Golden has concerning this decision was his belief that the proposal would create too many reporting differences between not-for-profit organizations and for-profit business.  He also believes that the projected changes would go too far.  Kroeker, who was unable to attend the meeting and voted by proxy, said in a prepared statement that he didn’t agree with the changes that would be made to the not-for-profit groups cash flow statements.
 

Although there was concern about the changes to the cash flow statements for members like, Lawrence Smith, the benefits of changing to the proposal weren’t enough to make him vote against it.
 

“I didn’t object to it and I voted for the changes made because I think when you look at the two cash flow statements side by side, one under direct and one under indirect, it’s pretty obvious the direct method conveys more easily understood information than indirect,” he stated.  He further commented on his decision to vote in favor of the proposal by praising the changes made to the basic performance statement.
 

"Is there flexibility? Yes. There's flexibility up the wazoo in terms of how management designates things, but it's clearly laid out and that's the important thing," he said. "It clearly lays out what funds are available to an entity in terms of furthering its mission."
 

The FASB also would like to improve the statement of activities by including the presentation of an operating measure with the information about expenditures related to the organization’s mission and donated funds available to be spent.
 

The changes in the proposal will be the first major changes to not-for-profit accounting and reporting in over 20 years.  My opinion is that the proposal is long overdue and the changes will enhance not-for-profit financial statements and provide the users of the financial statements, like donors, an increased understanding of the financial performance of Organizations.
 
 



This blog is published periodically by HW&Co. as an information service to our clients, business associates and friends. It is general information and professional advice should be obtained before acting on any comments contained in this document.