Summing It Up – The Latest on Financial Reporting for Healthcare and Not-for-Profit Entities

ASU NFPsThe Financial Accounting Standards Board (FASB) continues to discuss proposed changes to the current healthcare and not-for-profit entities (NFPs) financial reporting model.  At its March 2, 2016, meeting, the FASB continued Phase 1 redeliberations on the proposed Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities, which we explored in a previous article.

The FASB issued the original exposure draft in April 2015 as part of its three-year project related to the not-for-profit financial reporting model.  After receiving public comment, the FASB decided at its October 2015 meeting to split the project into two phases.  Phase 1 would focus on issues that are not dependent on other projects and are considered to be finalized in the near-term; Phase 2 would focus on issues that will take more time since other proposals need to be considered.  The project’s objective was to reexamine existing standards for financial statement presentation by not-for-profit entities, focusing on improving a) net asset classification requirements and b) information provided in financial statements and notes about liquidity, financial performance, and cash flows.

The proposed ASU represents a conceptually different approach to how information is presented in financial statements. In that respect, it resembles the FASB’s research project on Financial Performance Reporting, which is focused on developing an operating performance metric for business entities.  The cornerstone of the proposed ASU is a new way of defining “operating activity.”  Items would be classified as operating or non-operating in the statement of activities (or similar statement) based on whether they arise from operating, investing, or financing activities.  The classification of certain items in the statement of cash flows would also be changed to be more consistent with the performance statement.  A defined subtotal for operating activity would be required for all not-for-profits.

The following is a recap of the FASB discussion March 2, 2016, related to Phase 1.

  • Not-for-profit entities (NFPs) would be required to report internal transfers appropriately disaggregated and described by type, either on the face of the financial statements or in the notes.
  • The staff was directed to include, in the final ASU, examples illustrating different ways entities might report such information.
  • The exposure draft would be modified to clarify the objectives of providing information useful in assessing an NFP’s liquidity and the type of information that financial statements are capable of providing for that purpose.
  • NFPs will be required to provide:
    • Qualitative information in the notes that communicates how the NFP manages its available liquid resources to meet cash needs for general expenditures within one year of the balance sheet date.
    • Quantitative information either on the face of the balance sheet or in the notes, and additional qualitative information in the notes as necessary, that communicates the availability of an NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date.

PYA will monitor additional decisions that come out of future FASB discussions and keep you apprised of those updates.

If you have questions about the latest financial reporting measures, or would like to request a speaker on this topic for your organization or event, contact one of our executives listed below, (800) 270-9629.

Doug Arnold

Doug Arnold


Mike Shamblin

Mike Shamblin

Managing Principal of Audit & Assurance Services

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