The Financial Accounting Standards Board’s Not-for-Profit Advisory Committee has recommended a set of fundamental changes in the accounting rules for nonprofit organizations that would require them to explain their finances to donors and other interested parties in greater detail.
A key recommendation from the advisory committee would create a framework for not-for-profit directors and managers to provide commentary and analysis about the organization’s financial health and operations, somewhat similar to the “Management Discussion and Analysis” provided by publicly traded companies in their annual reports, to help bring context to their financial story.
Another suggestion involves improving the statements of activities and cash flows to more clearly communicate an organization’s financial performance.
The committee also suggested streamlining, where possible, the existing not-for-profit-specific disclosure requirements to improve their relevance and clarity.
Another of the main recommendations includes revisiting the current net asset classifications, and examining how they might be relabeled or redefined, in order to improve how liquidity is portrayed in a not-for-profit’s statement of financial position and related notes.
“The Not-for-Profit Advisory Committee has provided the FASB with focused input about specific areas of improvement for not-for-profit financial reporting, and we commend its members for their thoughtful approach to the issues,” said FASB chair Leslie F. Seidman in a statement.
The recommendations will be submitted in a formal agenda request by the FASB staff, and the board is expected to discuss the request at a public meeting later this fall.
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