Approximately 13,340 nonprofits registered with the state Department of Consumer Protection may be impacted by FASB’s proposed changes to financial reporting. In April, they announced the proposal to change the following items:
- Income Statement
- Rule: Requires entities to report net income or loss from operating activities, separate from non-operating activities.
- Impact: Clearly shows income and costs directly related to accomplishing the mission of the organization.
- Reason for change: Non-operating activities can often times distort the bottom line, making it difficult for an interested party to distinguish the financial performance directly related to the nonprofit’s mission.
- Net Assets
- Rule: Requires the reporting of only two classes of net assets: net assets with donor restrictions and net assets without donor restrictions.
- Impact: It would eliminate having to report the three classes of net assets: unrestricted, temporarily restricted and permanently restricted.
- Reason for change: FASB hopes to reduce complexity and improve understandability.
- Cash Flows
- Rule: Requires the cash flow statement to be presented using the direct method.
- Impact: It will completely transform the way information is presented and will provide more useful information to stakeholders.
- Reason for change: To provide better information for decision-makers regarding an entity’s financial performance, service efforts, need for external financing, and stewardship of donor funds.
The FASB anticipates these changes will go into effect for 2017. Until then, they invite professionals to weigh in on the proposed changes by emailing email@example.com or by visiting the website at www.fasb.org.
By Kristian Haralson