Current financial reporting issues and COVID-19 related matters were front and center at the recent semi-annual meeting of the Financial Accounting Standards Board (FASB) Not-for-Profit (NFP) Advisory Committee.
Discussions focused primarily on accounting and reporting of various CARES Act programs, including the Higher Education Emergency Relief Fund (HEERF), the Paycheck Protection Program (PPP), and the Healthcare Provider Relief Funds (HCPRF), according to a report of the meeting from FASB.
For the HCPRF, the committee discussed the specific ambiguities that currently exist around the guidelines for “lost revenues” eligible for reimbursement. There was also some discussion about the analogizing being done by some stakeholders to the “first dollar”/ “deemed spent” guidance in generally accepted accounting principles (GAAP) for satisfaction of restrictions in determining whether barriers to entitlement (and thus, conditions) are substantially met in a particular period under the not-for-profit conditional contribution/grant model in Subtopic 958-605 for some of the CARES Act programs.
The committee discussed the importance of good disclosure to help financial statement users understand the judgments being made by management in the face of the various uncertainties. Committee members also discussed the potential need for educational materials related to COVID-19 financial reporting implications, including a potential educational webcast, and indicated that the FASB should continue to monitor the situation.
Committee members discussed the implementation of Update 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, providing feedback to the FASB members and staff regarding the experience and results of implementing the standard. Committee members discussed the costs and benefits experienced in practice versus the costs and benefits the Board expected when issuing the ASU.
Committee members indicated that the implementation experience was generally positive, the standard has been well-received, and has generally resulted in better, more transparent financial information for users (including governing boards). Factors contributing to an effective implementation included: the long implementation period, together with the ASU being well-publicized, allowed for a significant number of early adopters from which other NFPs could learn; considerable educational guidance from the FASB staff, the AICPA, CPE providers, and various firms; and, a good deal of preparation of management teams and audit committees.
Members indicated that the costs incurred to implement the standard were often less than initially anticipated and typically didn’t involve significant changes to systems. Also, the costs were largely of a nonrecurring nature.
Most committee members noted that the information needed to implement ASU 2016-14 was generally readily available, and that the most challenging aspect of implementing the standard was the additional liquidity disclosure. They noted that the information provided by that disclosure will likely continue to evolve as more entities adopt best practices learned from other nonprofits and refine their own approaches, but that it should prove to be especially useful in the current pandemic environment.
Many financial managers at nonprofits took the opportunity to revisit, streamline, and otherwise improve the information in their other notes. This has been a key benefit to the users of their statements. Some committee members noted that certain information about endowment corpus, previously provided through a separate, permanently restricted net asset class, is now being provided, with better labeling, by many higher education and other NFPs in the notes to the financial statements.
Update on Not-for-Profit Reporting of Gifts-in-Kind—FASB staff provided an update on the recently completed ASU 2020-07, Not-for-Profit Reporting of Gifts-in-Kind, which was issued on Sept. 17.
Committee members provided feedback to FASB staff on how to educate NFP stakeholders on the new ASU. They suggested that the ASU be publicized through various speeches at conferences and other venues and also emphasized the benefit of a potential FASB webcast. One member suggested also hosting a virtual roundtable next year with some larger NFP entities to ease implementation and answer questions that may arise.
Additionally, committee members provided feedback on potential additional educational materials on the valuation of gifts-in-kind. Notably, members saw value in a potential FASB Staff Q&A document to remind stakeholders of the existing FASB and AICPA guidance and perhaps provide some additional examples. The participating observer from NASCO indicated her organization’s willingness to assist in bringing awareness to the ASU and in reviewing and bringing awareness to any additional education guidance on valuation.