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FASB Nonprofit Project Focuses on Investment Expenses

Working to complete the draft guidance in Proposed Accounting Standards Update (ASU) No. 2015-230, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities, the Financial Accounting Standards Board (“FASB”) met recently to discuss how nonprofits report their investment returns and expenses. During the February 3rd meeting, the FASB unanimously agreed that nonprofit organizations will have to report investment returns net of their external and direct internal investment expenses. The discussion focused on the terms “direct internal” as opposed to related expenses. The provision will provide clarity regarding the fees and expenses associated with managing a nonprofit’s investments.

Also decided in a 4 to 3 vote was a change from the 2015 proposal, which initially said nonprofits would no longer be required to disclose netted investment expenses with the exception of those in regard to internal salaries and benefits. Instead, the standard setter agreed to scrap the netted investment expenses disclosure requirement altogether.

Later in the meeting, the FASB agreed to provide guidance on the presentation of net investment returns for certain nonprofits that operate similarly to for-profit organizations that present a performance indicator. The FASB also unanimously affirmed a piece of the proposal that eliminates the requirement to present investment return components in the endowment net assets rollforward.

Next considered by the accounting board were requirements concerning how nonprofits report expenses by nature and evaluate their operating expenses. However, due to proposal feedback revealing differences among the various types of nonprofit groups, the FASB could not reach an agreement. FASB staff members were ordered to conduct further analysis for later discussion.

The meeting concluded with the FASB confirming new disclosures associated with cost allocation and disclosures that seek to clarify management and general activities. Some groups were concerned the disclosures may lead to useless information being presented, but nonprofit financial statement readers preferred them. As a result, the FASB chose to keep the proposed disclosures intact.

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