AICPA’s FinREC Comments on FASB’s Proposed Accounting Standards Update for Not-for-Profit Entities and Health Care Entities

August 20, 2015

The Financial Reporting Executive Committee (FinREC) of the American Institute of CPAs (AICPA) is supportive of the intent of the Financial Accounting Standards Board (FASB) to improve financial reporting and disclosure for not-for-profit entities (NFPs), but has expressed concern with some of the provisions of a proposed Accounting Standards Update that FinREC believes “would lead to a further divergence of the NFP financial reporting model from that of for-profit businesses.”

FASB on April 22 issued an Exposure Draft of Proposed Accounting Standards Update—Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities.

In a comment letter submitted August 11, the AICPA explained that “it is in the best interest of financial statement users for a single 'core' financial reporting model to apply to all of FASB’s constituents – public business entities, private companies, and NFPs – with incremental differences tailored as necessary for the unique circumstances and characteristics of NFPs and private companies.  As a result, FinREC is concerned that certain changes in the proposed ASU – specifically those related to the proposed definition of an operating metric and changes in cash flow classifications – would result in uncoupling the not-for-profit financial reporting model from the model used by business entities.

The letter, signed by FinREC Chair Jim Dolinar and Not-for-Profit Expert Panel Chair Cathy Clarke, recommended that FASB move ahead with changes and other incremental proposed improvements in the not-for-profit reporting model that are not-for-profit specific (for example, changes to the net asset classifications, reporting of underwater endowments, releases of restrictions on capital gifts), “but suspend separate deliberations on those aspects that intersect with the projects for business entities (such as a prescribed operating/nonoperating distinction and changes to the cash flow categories) until FASB’s direction with respect to business entities is clearer.”