Not-for-Profits Not Forgotten: The U.S. FASB and the Canadian AcSB Are Showing Increased Interest in Setting Accounting Standards for Not-for-Profit Reporting Entities in the Private Sector
Pounder, Bruce, Strategic Finance
As regular readers of this column know, changes to final-coal accounting and reporting standards occur frequently these days. Most of the changes that I write about are directed at for-profit (FP) reporting entities in the private sector. Not-for-profit (NFP) entities in the private sector, however, have certain accounting needs and capabilities that differ from those of FP entities. As standardssetting bodies come to better understand FP vs. NFP differences, their improved understanding shapes their agendas. In this month's column, I'll describe some significant actions recently taken by the U.S. Financial Accounting Standards Board (FASB) and the Canadian Accounting Standards Board (AcSB) with regard to NFP standards setting.
What NFPs Are-and Aren't
The uniqueness of private-sector NFP entities is often poorly understood, so I'll start by making four important distinctions. First, NFP entities in the private sector shouldn't be confused with NFP entities in the public sector. Standards setters often use the term governmental instead of public-sector to refer to reporting entities that are units of a national, local, or other government. Accordingly, the term nongovernmental is often used instead of private-sector to refer to other reporting entities. This column focuses specifically on nongovernmental NFPs.
The second distinction is between FP and NFP entities, which, for standards-setting purposes, tends to be more complex than you might imagine. For example, the Master Glossary of the FASB Accounting Standards Codification[TM] (ASC) defines a nongovernmental NFP entity as one that possesses the following characteristics "in varying degrees" that distinguish it from a "business" entity:
* Contributions of significant amounts of resources from resource providers who don't expect commensurate or proportionate pecuniary return,
* Operating purposes other than to provide goods or services at a profit, and/or
* Absence of ownership interests like those of business entities. The third distinction is that
NFP status isn't the same as tax-exempt status. Depending on the tax jurisdiction, a specific NFP entity may or may not be exempt from income taxes or other taxes. Furthermore, a specific FP entity might be exempt from some or all taxes. So NFP and tax-exempt clearly aren't synonymous terms.
The fourth distinction is that a nongovernmental entity's NFP status is independent of the entity's status as "public" or "nonpublic," which depends on whether the NFP entity has issued debt or other nonequity securities to the general public (or securities that now trade among the general public). NFP entities that have done so are typically subject to regulation by a national securities commission, such as the U.S. Securities & Exchange Commission (SEC), whereas NFP entities that haven't done so are typically subject to far less regulatory oversight.
NFP Standards Setting in the United States
The FASB sets authoritative financial accounting and reporting standards for nongovernmental U.S. entities. These standards, which comprise U.S. Generally Accepted Accounting Principles (GAAP), are in most instances applicable to both FP and NFP entities. Some provisions of U.S. GAAP, however, apply only to FPs, while other provisions apply only to NFPs. For example, under U.S. GAAP, both FP and NFP entities prepare a balance sheet (also known as a statement of financial position), a statement of cash flows, and accompanying notes. But NFP entities prepare a statement of activities rather than the income statement that FP entities prepare.
In 2009, the FASB established a Not-for-Profit Advisory Committee (NAC). The 17-member NAC serves as a standing resource for the Board to obtain input from the NFP sector regarding current GAAP, current and proposed standards-setting projects, and longer-term issues affecting NFP entities. …