The Financial Accounting Standards Board has taken a further step toward making the financial statements of nonprofits more useful amid some concerns that the proposed changes will make the standards system more complex.
FASB voted 5–2 at a meeting earlier this week to issue a proposal to update the current net asset classification scheme and the information about liquidity, financial performance, and cash flows that nonprofits are required to disclose. The proposal will be made available for public comment in the middle of April.
“The Board decided that the overall expected benefits of the proposed financial reporting changes justify the perceived costs of preparing and using the information, subject to consideration of other input and information received through public exposure and related outreach,” FASB said in a summary of the meeting.
Under the proposal, the number of net asset classes presented in a statement would be reduced from three to two. The new classification would convey net assets with donor-imposed restrictions and without donor-imposed restrictions. Nonprofits also would be required to report expenses by their nature and by function.
“I think the benefits justify the costs,” FASB member Tom Linsmeier said during the meeting, according to the Journal of Accountancy. “I think that we’re providing an opportunity for the not-for-profit community to tell their story far better.”
FASB Chairman Russell Golden dissented, expressing concern that the proposal may increase complexity in the system overall by addressing only the not-for-profit sector.
“We should have thought holistically about the cash-flow statement, holistically about the operating performance measure, and holistically about the classifications within the cash-flow statement,” Golden said.
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