Due to feedback provided by the Not-for-Profit Advisory Committee (NAC), the Financial Accounting Standards Board (FASB) reconsidered in its October meeting two positions
on areas affecting the intermediate measure of operations to be reported in the statement of activities:
- The treatment of capital gifts
- The use of board designations and transfers
NAC members previously expressed concern over the cost and complexity of making certain changes in the areas of capital-like transactions and board designations, appropriations, and similar transfers (collectively referred to as transfers).
FASB is now proposing that not-for-profit (NFP) entities would report the receipt of gifts of long-lived assets without donor restrictions as operating revenue. When the assets are placed in service (instead of being sold), the NFP would report a transfer out of operations for the entire amount of the gifted long-lived asset. (This is a welcome change that reduces the complexity of FASB’s prior decision, which would have required entities to report a transfer out of current operations for the amount of the gifted long-lived asset expected to be utilized in future periods, and back into current operations in subsequent periods to the extent long-lived assets are utilized during the current reporting period.)
The revised position reflects the view that, when an NFP begins using a capital asset, the revenue generated from the activities related to the asset will be matched with the depreciation recorded on the asset. Both are recorded in current operations.
Gifts of cash that are donor restricted for the acquisition or construction of long-lived assets would initially be reported as revenue that increases net assets with donor restrictions, which is reported outside of operations. When the asset is placed in service, the release of the donor restriction would be reported as an increase in net assets without donor restrictions (within current-year operating activity) and a corresponding decrease in net assets with donor restrictions. This amount would be reported as a transfer from operations to non-operating activities, similar to the treatment of long-lived assets, and there would be no transfers back into operations in subsequent periods.
FASB also addressed concerns about the degree of flexibility regarding board designations, appropriations, and similar transfers. They concluded that several key requirements were necessary:
- Present all transfers in a separate, discrete section in the statement of activities.
- Include a subtotal of operating revenues and expenses before and after such transfers.
- Present the aggregate of transfers out of operating activities separate from of aggregate transfers into operating activities.
- When an NFP does not present all transfers as discrete line items in the statement of activities, it should provide details for aggregated transfers in a note to the financial statements.
- NFPs must describe the purpose, amounts, and types of transfers incurred, e.g. transfers arising from standing board policies and those arising from one-time decisions.
FASB directed staff to prepare a draft on the Not-for-Profit Financial Statement project for external review, and will wait for the results of this review before voting on issuing a proposal, expected in early 2015.