What FASB has in store for not-for-profits

By Ken Tysiac

Not-for-profit accountants and auditors have plenty of standards implementation work to do right now.

They are busy working to implement FASB’s new standards for revenue recognition and not-for-profit financial reporting. New standards for leases and credit losses also have had a significant impact on preparers and auditors.

FASB member Christine Botosan said Wednesday at the AICPA Not-for-Profit Industry Conference in Maryland that the board understands the challenges these changes pose.

“The system is trying to absorb all of that change,” Botosan said. “We know that it’s a lot. We’re doing as much as we can to try to support that.”

That may mean a period with relatively few additional standards produced by FASB. The board is taking this time to move closer to completion on its conceptual framework and is evaluating feedback following an agenda consultation on four potential issues for future standard setting:

  • Intangible assets, including research and development.
  • Pensions and other post-retirement benefit plans.
  • Distinguishing equity from liabilities.
  • Reporting performance and cash flows, including income statement, segment reporting, other comprehensive income, and statement of cash flows.

FASB will evaluate which of those projects to add to its standard-setting agenda after new board member Marsha Hunt, CPA, joins the board in July. But regardless of which of those projects are added to the agenda, they are unlikely to result in a standard anytime soon.

“The board does not move at the speed of light,” Botosan said. “So even afterward, whatever projects we decide to add, it’s going to be multiple years before you start to see any real effect from those projects.”

There is one important additional project on the horizon for not-for-profits in the near term. The implementation of the new revenue recognition standard created additional urgency related to a diversity in practice in classifying grants and contracts, particularly with those from governmental entities.

Many not-for-profits treat government contracts as exchanges, regardless of their substance. The logic behind this practice (“the government doesn’t give contributions”) has been questioned because it’s difficult to prove that the public benefit the government receives has commensurate value in return for the funds the not-for-profit receives.

Even if such funds are considered contributions, there is confusion over whether they are conditional or unconditional contributions.

FASB expects that in late July, it will propose a new standard on accounting for grants and contracts for not-for-profits that will clarify how to account for such transactions.

The board’s goal is to have a new standard in place for grants and contracts for not-for-profits by early next year.

Another new standard may create additional challenges at an already busy time. But FASB hopes not-for-profits and their auditors will see the benefits if the standard eliminates confusion and improves GAAP.

“We really are trying to deal with 20 years or so of confusing or substandard guidance,” said Jeff Mechanick, FASB’s assistant director–nonpublic entities.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.


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