Financial Reporting UpdateMarch 12, 2013
Marcus R. Harwood, CPA
The Financial Accounting Standards Board (FASB) Not-for-profit Advisory Committee (NAC) is continuing to develop recommendations intended to improve the nonprofit financial reporting model. The NAC is reconsidering whether the current net asset classification scheme – unrestricted, temporarily restricted and permanently restricted, based on donor intent, is the most relevant and meaningful classification scheme. They are also exploring reporting options, including a potential reformatting of the statement of activities, intended to provide better information about liquidity and operating activities. The current FASB project plan calls for the release of an exposure draft during the second half of the year. We will provide updates when information is available as the project may have a substantial impact on all non-profit financial statements.
As your fiscal year ends approach, the changes to consider are modest in comparison to what may be on the horizon and include some additional disclosures regarding fair value. Certain of the disclosures listed below, which are required by Accounting Standards Update 2011-4, are listed as applicable to public companies only. Keep in mind that if your organization has issued publicly traded tax exempt bonds, you are considered to be a public company.
For fair value measurements categorized within Level 3 of the fair value hierarchy:
The valuation processes used by the reporting entity
- The sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. (public companies only)
- The valuation processes used by the reporting entity
A reporting entity’s use of a non-financial asset in a way that differs from the asset’s highest and best use when that asset is measured at fair value in the statement of financial position or when its fair value is disclosed on the basis of its highest and best use.
The categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed (for example, a fixed rate debt that is carried at the outstanding principal balance on the statement of financial position but for which fair value is disclosed in accordance with Topic 825, Financial Instruments) (public companies only).
Previous requirement to disclose all SIGNIFICANT transfers between Levels 1 and 2 becomes a requirement to disclose ALL transfers between Levels 1 and 2
- Also must disclose the reasons for those transfers, and the reporting entity’s policy for determining when transfers between levels are deemed to have occurred (public companies only)
Please contact a member of your engagement team if you would like to discuss the impact of any of these new disclosure requirements on your financial statements.