AICPA committee gives mixed review, alternatives to not-for-profit proposal

By Ken Tysiac

A key AICPA committee has expressed concern that FASB’s proposed changes to not-for-profit accounting standards would lead to a further divergence between the financial reporting models of not-for-profits and for-profit businesses.

The AICPA Financial Reporting Executive Committee (FinREC) expressed support for FASB’s intentions to improve financial reporting and disclosure for not-for-profits, but also described concerns in a comment letter dated Aug. 11 and signed by FinREC Chair Jim Dolinar and Not-for-Profit Expert Panel Chair Cathy Clarke.

FASB requested public comment in an exposure draft issued April 22. Proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities, would bring the most substantial changes in 20 years to the not-for-profit reporting model.

FinREC recommended that FASB move ahead with changes that are specific to not-for-profits, such as changes to the net asset classifications, reporting of underwater endowments, and releases of restrictions on capital gifts.

But FinREC encouraged FASB to suspend separate deliberations on aspects that intersect with projects for business entities until FASB’s direction with respect to business entities is clearer. These areas would include a prescribed operating/nonoperating distinction, and changes to the cash flow categories.

As an alternative to FASB’s proposed operating measures, FinREC recommended developing a measure for results of operations for all not-for-profits that is similar to the performance indicator used by not-for-profit health care organizations today.

FinREC wrote that certain proposed changes, specifically those related to the proposed definition of an operating metric and changes in cash flow classifications, would result in uncoupling the not-for-profit financial reporting model from the model used by business entities.

“It is in the best interest of financial statement users for a single ‘core’ financial reporting model to apply to all of FASB’s constituents—public business entities, private companies, and NFPs—with incremental differences tailored as necessary for the unique circumstances and characteristics of NFPs and private companies,” FinREC wrote.

FinREC is not alone in its concern that the proposal could create a nonbeneficial uncoupling of not-for-profit and for-profit financial reporting. FASB Chairman Russell Golden, who cast one of the dissenting votes in the 5–2 decision that issued the proposal, said during a public meeting in March that the board should have thought holistically about the cash flow statement, classifications within the cash flow statement, and the operating measure that were included in the proposal.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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