FASB NPO Board Sorts Through Financial Challenges

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Emerging financial reporting issues in the nonprofit sector, accounting for and disclosure of intangibles (research) and recent updates were the topics of conversation during the recent semi-annual meeting of the Financial Accounting Standards Board (FASB) Not-for-Profit (NFP) Advisory Committee.

Emerging Financial Reporting Issues in the NFP Sector

Committee members discussed:

1. Risks and uncertainties related to the collection of grants and how practice has handled the accounting for measurement uncertainty when applying the contribution model, which does not specifically address it;
2. The level of disclosures about risks and uncertainties in an NFP’s financial statements;
3. Diversity in practice related to cash flow classification of programmatic loans as operating or investing activities;
4. Diversity in practice regarding net versus gross presentation of endowment cash flows;
5. The issue of whether stablecoins should be classified as cash equivalents; and,
6. The reporting challenges for certain NFPs that are included in the various public entity definitions in generally accepted accounting principles (GAAP).
   

Agenda Consultation

FASB staff provided an overview of comment letter feedback received on the invitation to comment, Agenda Consultation (ITC). Committee members then provided feedback on financial accounting and reporting topics that the Board should and should not consider a priority for possible future standard setting. Committee members suggested the following as higher priority topics for consideration (in no particular order):

1. Enhancing disclosures, such as disclosures related to (a) risks and uncertainties, (b) the composition of net assets (for example, temporary versus permanent restrictions), (c) disaggregation of realized and unrealized gains and losses, (d) liquidity disclosures, and (e) expected contract revenues
2. Streamlining disclosures where possible
3. Amending the definition of cash equivalents to better distinguish cash equivalents from certain investments
4. Improving the nonprofit consolidation and mergers and acquisitions guidance to better reflect the economics of certain arrangements and improve the navigability of the guidance
5. Standardizing an operating measure by specifying the line items that should be included in operating versus nonoperating activities instead of developing a broad principle
6. Reconsidering the measurement guidance for asset retirement obligations due to complexities with estimating fair value
7. Excluding nonprofits with conduit or other public debt from various public entity definitions in GAAP
8. Eliminating the diversity in the valuation of certain nonfinancial assets held for investment (for example, oil, gas, and mineral rights), depending on how those assets are held (for example, directly or through a beneficial interest in a trust).
   

Accounting for and Disclosure of Intangibles (Research)

FASB staff provided an overview of comment letter feedback received on the ITC. Committee members provided no feedback.

Select FASB Projects and Other Research — FASB staff provided an update and solicited feedback on the applicability/pervasiveness to nonprofits of the following:

1. Application of Topic 715, Compensation—Retirement Benefits, to Market-Return Cash Balance Plans (Emerging Issues Task Force [EITF]) — Committee members provided feedback on the project and discussed the prevalence of market-return cash balance plans in the NFP sector. Committee members stated that they do see those types of plans in practice, but that those plans are uncommon. One practitioner Committee member expressed the view that the recommended measurement alternative would be a simplification to the current guidance but may not be a better reflection of the economics because market-return cash balance plans would be treated differently from other defined benefit plans.

1. Subjective Acceleration Clauses (Private Company Council [PCC] research project) — Committee members provided feedback on the PCC’s research project, noting that classified balance sheets are not common in the nonprofit sector except for health care entities (for which classified balance sheets are required) and certain fee-based nonprofits. User Committee members noted that subjective acceleration clauses (SACs) are included in nearly all nonprofit debt arrangements (both traditional and programmatic loan arrangements) and are intended as “catch-all” clauses to capture the risks of a debtor’s inability to repay that are not otherwise captured in objective covenants and other protective clauses. Those user 

Committee members indicated that, generally, repayment of debt would not be accelerated on the basis of such clauses alone. A practitioner Committee member noted that auditors most frequently analyze such clauses in connection with going-concern assessments. 

Practitioner and user Committee members stated that lockbox arrangements are uncommon in NFP lending agreements. A user Committee member stated that SACs are commonly included in refinancing agreements. Several Committee members discussed the execution of post-balance-sheet-date refinancing agreements and the effect on the timing of issuing audited financial statements and on debt classification.

Recently Issued/Forthcoming Accounting Standards Updates 

FASB staff highlighted recently issued and forthcoming standards, noting their relevance to NFP entities.

1. Accounting Standards Update No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets
2. Accounting Standards Update No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software
3. Accounting Standards Update No. 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract
4. Interim Reporting—Narrow-Scope Improvements
5. Codification Improvements
6. Proposed Accounting Standards Update, Environmental Credits and Environmental Credit Obligations (Topic 818)

Proposed Accounting Standards Update, Debt—Modifications and Extinguishments (Subtopic 470-50) and Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Accounting for Debt Exchanges.