Recap of September 2024 AICPA Not-for-Profit Advisory Committee Meeting

Those of us who specialize in working with nonprofit organizations continuously monitor the Not-for-Profit Advisory Committee (NAC) of the Financial Accounting Standards Board (FASB). It is usually via the NAC that new guidance is developed and ultimately implemented, which affects the financial reporting of nonprofit organizations. The NAC was established in October 2009. The NAC is a standing committee that works closely with the FASB in an advisory capacity to ensure that perspectives from the not-for-profit (NFP) sector are effectively communicated to the FASB on a timely basis in connection with the development of financial accounting and reporting standards. They typically meet twice a year, and much of the future agenda of nonprofit rulemaking is shaped in these meetings, so the material and reports from the meetings are closely observed by professionals in this space. On September 10, 2024, the FASB’s NAC held its semiannual meeting, focusing on several key areas:

1. 2024 FASB Agenda Consultation Review: The Committee reviewed the consultation process and criteria for prioritizing financial reporting areas for NFPs. While many members felt current GAAP is generally sufficient, they highlighted the ongoing complexity in financial reporting and the need for reduced complexity in future standards. They proposed improvements in disclosures related to debt and liquidity risk, as well as exploring operating measures and financial key performance indicators (KPIs) for better transparency. It’s clear that the members would like to work towards some sort of measurement criteria for impact in the future, but there continues to be doubt about whether meaningful KPIs could be identified and standardized for NFP entities.
2. Implementation of Standards: An update was provided on the implementation of standards like Topic 842 (Leases) and Topic 326 (Financial Instruments—Credit Losses). Members noted the complexity of the current expected credit losses model but acknowledged its clarity. They suggested possible expedients for short-term receivables.
3. Select FASB Projects: Updates were shared on projects related to software costs, environmental credit programs, and derivatives. Concerns were raised about the implications of these projects for NFPs, particularly regarding software cost capitalizations and derivative accounting.
4. Recent Trends and Concerns: The Committee discussed emerging issues such as cybersecurity risks, the potential need for better disclosures related to these risks, and the impact of artificial intelligence on financial reporting. They noted the importance of transparency in financial statements, calling for more disaggregated information on investment returns and labor costs.

Overall, the meeting highlighted a desire for simplified reporting standards, improved disclosures, and adaptability to emerging trends in the NFP sector. It’s always exciting to read the meeting notes from this committee as they offer a sneak peek into the direction that financial statement reporting will take in the coming years.  This article was written by Windes Nonprofit Practice Leader Mike Barloewen. Michael Barloewen, CPA, CGMAAudit & Assurance Services Partner [email protected]949.271.2607     For more information or questions about this article or to find out how Windes can assist, please contact our Nonprofit Team at [email protected].