Guest post by David Kilmer. David is the Lead Solutions Engineer at Blackbaud for our enterprise customers. David has over 10 years experience working with nonprofit organizations to optimize their accounting processes.

               

At the beginning of every year, it’s fascinating to read all of the “top” lists from around the Internet, hear what commentators are saying about the past year’s occurrences, and generally reflect on the previous year (of course all while accounting for those year-end gifts).

This is time of year is also a time to look forward to what can be expected from the New Year both personally and professionally.  As such, I wanted to share with you a couple of tentative decisions recently made by the Financial Accounting Standards Board (FASB) in regard to Not-for-Profit Financial Reporting.

During the October 23, 2013 FASB Board Meeting, the Board tentatively decided to improve the statement of cash flows for all Not-for-Profits by:

1. Requiring the direct method of reporting cash flows provided [used] by operating activities and removing the requirement to reconcile the change in net assets to net cash flow from operating activities (often referred to as the indirect method).

2. Revising how the following items are classified in the statement of cash flows:

  • Cash payments to purchase, construct, or otherwise acquire long-lived assets for operating purposes would be classified as outflows from operating activities rather than as outflows from investing activities
  • Cash dividends and interest income would be classified as inflows from investing activities rather than as inflows from operating activities
  • Cash payments of interest expense would be classified as outflows from financing activities rather than as outflows from operating activities.

In addition, during the December 18, 2013 FASB Board Meeting the Board tentatively decided to improve the reporting of expenses for all Not-for-Profits by:

1. Requiring Not-for-Profits to report expenses by their nature and retaining the requirement to report expenses by function

2. Continuing to allow Not-for-Profits the flexibility to present expenses by either function or nature or by both on the face of the statement of activities or within the notes

3. Requiring Not-for-Profits to provide an analysis of all expenses by function and by nature in one location, in the statement of activities, a separate statement of expenses (currently called a statement of functional expenses), or a schedule in the notes. That analysis would include all expenses, both operating and non-operating, and would neither require nor preclude functionalization of non-operating expenses. Although this analysis would typically be provided in the form of a matrix, that specific format would not be required.

For voluntary health and welfare organizations that are currently required to present expenses by function and by nature in a matrix format in the statement of functional expenses, the decisions reached would allow them the same presentation and disclosure flexibility as other Not-for-Profits in how they communicate information about expenses.

While the decisions made are only tentative, it is nice to know in advance that change may be on the way.  Please be sure to check back here or www.fasb.org  for updates and additional information.

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