If the technical correction is approved by the board, it would be incorporated in the final Accounting Standards Update (ASU) on technical corrections and improvements, which is expected to be issued in December.
The proposed amendments to ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, would restore legacy wording that the FASB says shouldn’t have been changed. The words “that contain no purpose restrictions” in paragraph 958-205-50-1B(e)(3) would be removed, according to the FASB.
The proposal also clarifies the minimum requirements for the reconciliation that a not-for-profit is required to disclose if it has endowment funds.
“Whether funds appropriated for expenditure from an endowment fund have an associated purpose restriction does not affect the amount that should be reported as removed from the not-for-profit entity’s endowment. Rather, the act of appropriation by the entity’s governing board is what results in such removal,” the proposed ASU states. “Furthermore, it was not the board’s intent to require a distinction between funds appropriated for expenditure by requiring separate presentation of such funds that contain no restrictions from funds that are appropriated for a specific purpose.”
Not-for-profits generally get “significant contributed resources and operate to further a public purpose rather than to achieve a profit objective, and their stakeholders, unlike those of business entities, generally do not have ownership interests,” the proposed ASU states.
Not-for-profits typically include nongovernmental entities, such as charities, foundations, colleges and universities, healthcare providers, cultural institutions, religious organizations, and trade associations, among others.
The proposed change would provide the benefit of improving consistent application of GAAP by clarifying existing GAAP guidance, the FASB states. The correction wouldn’t result in new accounting requirements nor significant changes in practice, the board states.
The comment period on the proposed technical correction concluded on Nov. 11.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.