Not-for-Profit Advisory Committee (NAC)


September 13, 2022

The FASB Not-for-Profit (NFP) Advisory Committee (the Committee) held its semiannual meeting on Tuesday, September 13, 2022. The meeting was held in a hybrid setting with most participants attending in person and some participating virtually. Topics discussed included the following:

Implementation of Recent Standards—FASB staff provided an update on the implementation of recent standards since the March 2022 NAC meeting. Committee members provided feedback on the following topics:

  1. Accounting Standards Update No. 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
  2. Topic 326, Financial Instruments—Credit Losses
  3. Topic 842, Leases
  4. Topic 606, Revenue from Contracts with Customers
  5. Topic 848, Reference Rate Reform.
Committee members noted that currently, there are no significant implementation concerns or issues in applying the guidance in Update 2020-07 or Topic 848 but there continue to be challenges in distinguishing whether an entity is acting as a principal or an agent when applying the guidance in Topic 606 to some transactions involving health care entities. The American Institute of Certified Public Accountants (AICPA) observer indicated that the AICPA is in the process of updating its Not-for-Profit Entities Audit and Accounting Guide for the application of the credit losses guidance to programmatic investments, and a committee member also noted some potential challenges in applying the guidance to financial guarantees made. Committee members noted that related party leases, including leases between entities under common control, do occur in the NFP sector and that sometimes the terms of the arrangements are not written. Committee members also noted that there can be inconsistencies between the term of such leases and the useful life of leasehold improvements.

Conceptual Framework—FASB staff provided a brief overview of the Conceptual Framework and its role in standard setting and of recent changes made to the Conceptual Framework. FASB staff also provided an overview of current Conceptual Framework projects: (1) Measurement, (2) The Reporting Entity, and (3) Recognition and Derecognition. Committee members sought further clarification about how the Conceptual Framework is considered in the standard-setting process.

Update on Other Current Projects—FASB staff provided an update on the 2021 FASB Agenda Consultation and the Accounting for and Disclosure of Software Costs and Accounting for and Disclosure of Crypto Assets projects. Committee members noted that differentiating between maintenance and enhancement costs can be difficult with current software development practices. Some committee members thought that software development costs could be expensed as incurred in the same manner as research and development costs, while other members supported capitalizing software development costs if they could provide a future economic benefit, notwithstanding the difficulties in making such judgments. Committee members also indicated that they had not noticed a significant increase in NFP organizations investing in or otherwise holding crypto assets since the March 2022 Committee meeting.

Recent Trends, Concerns, and Observations of Committee Members—Committee members discussed recent trends and observations in the NFP sector, such as an increased interest in environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) matters and metrics, and an increased emphasis on key financial and other performance indicators. Some committee members expressed concerns about how the current staffing shortage might affect the ability to provide detailed and transparent financial statements. One committee member suggested that the FASB consider a practical expedient or a simplification for determining the discount rate for promised contributions, analogizing to the risk-free rate election that is available for lessees that are not public business entities in Topic 842.

FASB’s Interaction with NFP Sector Stakeholders—FASB staff provided an overview of the FASB’s interactions with the various types of NFP sector stakeholders, focusing on financial statement users. One committee member suggested an increased emphasis on considering students as a type of stakeholder as they learn accounting. Another committee member stated that NFP peer organizations are stakeholders of one another because they have an interest in benchmarking against each other’s financials. Committee members noted that the educational resources provided by the FASB and other organizations are generally sufficient for learning about FASB accounting standards. One committee member suggested that, as the FASB is finalizing accounting standards, the Committee should advise the FASB on educational resources that may be helpful to the NFP sector.

FASB Not-for-Profit Advisory Committee Meeting Recaps are provided for those interested in following the activities of the Not-for-Profit Advisory Committee. More details on the Not-for-Profit Advisory Committee’s input on the FASB’s projects can be found within the meeting minutes, which will be published on the FASB website in the coming weeks.