Last week, the FASB issued Accounting Standards Update (ASU) No. 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows (a consensus of the FASB Emerging Issues Task Force).
The purpose of the Update is to eliminate diversity in the presentation of cash receipts from the sale of donated securities which are nearly immediately converted to cash as either an investing or a noninvesting activity in the statement of cash flows. ASU No. 2012-05 requires nonprofit organizations to classify the cash receipts from the sale of the securities as cash inflows from operating activities if there are no limitations on the sale or use of the securities. This treatment is consistent with cash donations. However, if there is a donor restriction on the securities, designating them for a long-term or capital project, then the funds should be classified as a financing activity.
This Update amends FASB ASC 230-10-45-12, and FASB ASC 230-10-45-21 Statement of Cash Flows—Other Presentation Matters, formerly SFAS No. 95, and is effective for fiscal years that start after June 15, 2013. However, organizations with fiscal years that begin before October 22, 2012 are permitted to apply the changes to their financial statements if they have not yet been made available for issuance.
ASU No. 2012-05 will be applied with prospective application, so nonprofits will not have to revise financial statements from previous reporting periods.