Not-for-Profit Advisory Committee (NAC)


September 7, 2023

The FASB Not-for-Profit (NFP) Advisory Committee (the Committee) held its semiannual meeting on Thursday, September 7, 2023. Topics discussed included the following:

Implementation of Recent Standards—FASB staff provided an update on the implementation of recent standards since the March 2023 Committee meeting. Committee members provided feedback on the following Topics:

  1. Topic 842, Leases
  2. Topic 326, Financial Instruments—Credit Losses.
Committee members discussed recent observations from the implementation of Topic 842 including transition methods elected, practical expedients utilized, systems and software for tracking and accounting for leases, areas of the guidance for which there were frequent discussions between practitioners and their clients, implementation costs, and expected recurring costs. A couple of preparer members noted that their organizations have a significant number of leases and found that through the implementation of the leasing guidance, they gained a better understanding of their leasing arrangements. User members noted that the operating lease liability that is now recognized on the statement of financial position provides more decision-useful information than the operating lease commitments disclosed under the prior guidance and that the required disclosures provide information that is useful to their financial statement analyses.

Related to the credit losses guidance, an American Institute of Certified Public Accountants’ (AICPA) observer indicated that the AICPA is in the process of updating its Audit and Accounting Guide, Not-for-Profit Entities, for the application of the credit losses guidance in Topic 326 to programmatic loans. The Committee also discussed the application of the current expected credit losses model to Community Development Financial Institutions (CDFIs). One Committee member noted that CDFIs are giving below-market loans to individuals, NFP organizations, and businesses that are in some ways similar to the lower-interest-rate programmatic loans given by private foundations to operating charities and that CDFIs are seeking additional resources (for example, illustrative examples) on how to apply the guidance.

Select FASB Projects—Updates on and Solicit Feedback—FASB staff provided an update on the Accounting for and Disclosure of Software Costs project and the Accounting for Environmental Credit Programs project. Committee members discussed the types of software used in the NFP sector, the unit of account, the probable-to-complete threshold and related indicators, the subsequent measurement of capitalized software, and the expected change in capitalization under the single model being developed by staff as compared with current generally accepted accounting principles (GAAP). Members generally indicated that the most common software costs are those incurred to develop or purchase software for an NFP’s internal use, such as electronic health records systems, enterprise resource planning systems, and procurement systems. They noted that there has been a shift to hosting arrangements that are configurable. One member suggested that the proposed guidance be clear on what types of costs are eligible for capitalization. Some Committee members indicated that they did not expect there to be a significant difference in the amount of software costs capitalized under the single model versus the current guidance. Additionally, when discussing potential disclosures being explored by the FASB staff, user members noted that gaining an understanding of the implementation risks associated with a software project would be meaningful.

About the Environmental Credit Programs project, Committee members indicated that some clarification may be needed on what types of credits are in the scope of the project and the types of transactions for which recognition and measurement guidance is being developed.

Staff Education on Selected FASB Projects—FASB staff provided updates on the Accounting for and Disclosure of Crypto Assets project and the Disclosure Improvements in Response to the SEC’s Release on Disclosure Update and Simplification project. Committee members did not raise any concerns about those projects.

Recent Trends, Concerns, and Observations of Committee Members—Committee members discussed recent trends, concerns, and observations in the NFP sector, including the range of business pressures that NFPs are facing and the associated consequences of those pressures on an NFP’s operations and financial reporting. Members discussed staffing shortages, inflationary pressures, rising interest rates, wage pressures, fundraising challenges, and declining COVID-19 financial assistance. Members noted that the current staffing shortages have affected the ability of some NFPs to fulfill contracts, in turn affecting revenue generation, and together with staffing shortages at their CPA firms, to provide timely financial statements. Members highlighted the need for NFPs to provide robust disclosures on liquidity, risks and uncertainties, and commitments and contingencies. They also stressed the importance of performing going concern analyses and providing the required going concern disclosures, when applicable. Additionally, some Committee members observed that there could be a greater need for NFPs to present an operating measure to help financial statement users understand how certain factors are affecting organizations and highlighted the usefulness of providing voluntary disclosures outside of the financial statements, such as in a management’s discussion and analysis.

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.