The Financial Accounting Standards Board (FASB) is proposing a revamp of how nonprofit organizations report their financial statements to improve transparency.
After reviewing its two-decade-old model over the past four years, the FASB proposed various changes including increased emphasis on net investment returns.
“Those changes would help not-for-profits better tell their story through GAAP financial statements for the benefit of donors and other financial statement users.” —FASB
The changes would require statements reporting the net value of investment expenses against investment return as well as external and direct internal investment expenses netted against gains.
The updated financials would, however, downplay disclosure of investment expenses per the guidelines of generally accepted accounting principles (GAAP). Instead, the board decided to require that nonprofits to reveal internal staff members’ salaries and benefits.
“The board believes those changes would help not-for-profits better tell their story through GAAP financial statements for the benefit of donors and other financial statement users,” said former KPMG Partner Larry Smith, one of seven members of the FASB.
To improve transparency post-financial crisis for both donors and creditors, the new standards would stipulate that nonprofits provide detailed data relevant to liquidity, including funds’ total assets, liabilities, and the amount of capital unavailable for cash needs.
Time horizon, as well as information about how the nonprofit manages its liquidity would also be included in the new reports.
The FASB is expected to make an official proposal of these updates by mid-April but will accept comments from all nonprofit stakeholders by July 31, 2015. The board has yet to choose an effective date for the changes, should the proposal be accepted.
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