A Review of Accounting Standards Updates for Nonprofits

To comply with recent implementation deadlines, nonprofit organizations have had to make a number of changes to their fair value measurement disclosures. These changes included how their net asset value, hierarchy, and similar qualitative and quantitative aspects are reported.

Changes to the disclosure requirements made by the Financial Accounting Standards Board were issues that impact fair value measurement under ASU 2018-13. These changes provided nonprofit leaders with an opportunity to shorten their overall fair value measurement disclosures, making their accounting and financial reporting processes easier.

But what does that mean for your nonprofit's reporting processes? Here's a quick overview of the ASU and its impacts on nonprofits.

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The Impact of ASU 2018-13

Because of ASU 2018-13, nonprofits that are nonpublic are no longer required to disclose a range of transfers, policies, and the dreaded Level 3 roll-forward. Because these organizations were allowed to implement a reduction in disclosures immediately upon the issuance of the ASU, they no longer had to deal with considering how these disclosures would impact their organization's operations.

However, the ASU also contained several additions to fair value measurement standards, and organizations could delay using those additions until the overall effective date. So, for public nonprofits (i.e., organizations with certain types of bonds outstanding), this ASU came back this year as public nonprofits were required to implement the additions for years starting after 2019.

Some additions that were required in the ASU involved fair value measurements for Level 3. There were several common changes to the disclosures including:

Trust Interests:

Increased rate disclosure is used (averages, ranges, or weighted average rates) to determine value of interests, combined with discounted cash flows and/or underlying assets’ values along with these rates.

Split Interest/Other Annuity Liabilities:

Increased actuarial information disclosure in determining value. Organizations may disclose average life expectancies, or the range of life expectancies, calculated.

Investments:

The composition of investments varies across organizations, but additional focus is being used on disclosures for market and income approaches to valuing organizations, as well as weighted averages used and ranges. These can include comparable markets such as EBITDA and broadcast cash flows, yield rate, volatility, earnings multipliers, price of land in a range of markets, probability of liquidation, and exit multipliers.

There is another standard that can impact nonprofits, which involves pension benefit or post-retirement plan definition. These are laid out in ASU 2018-14, subtopic 715-20. In this ASU, organizations are receiving reduced requirements for disclosure that are then offset by the addition of new requirements.

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Nonprofit organizations that have this type of plan, generally requiring the use of an actuary, are often able to enjoy the benefits of reduced requirements for disclosure for nonpublic, nonprofit organizations. This reduced disclosure option is not new and was not removed (thankfully) by this standard, providing a solid way for nonprofits to save time, effort, and finances to disclose their pension plans.

Unfortunately, public nonprofits are not eligible for the reduced disclosure requirement. As a result, many organizations have implemented the new ASU 2018-14 as early as possible as they find this allows them to reduce their disclosures in some areas. Others are still evaluating the effect and have additional time since the standard is not required until next year.

Organizations that implemented the standard early were able to remove several disclosures commonly found in the pension or post-retirement benefits notes:

• Organizations said goodbye to disclosing amounts expected to be recognized next year in net periodic post-retirement costs.
• They no longer disclose plan assets that are expected to be returned to the employer.
• Nonpublic nonprofits no longer have to disclose Level 3 roll-forward of applicable plan financial assets and liabilities.
• Public entities with post-retirement health and welfare plans no longer have to disclose the effect of a 1% change in healthcare cost trend rates, etc.

The major disclosure that many nonprofits added (or are intending to add in the future) is an explanation for significant changes, losses, and gains to the benefit obligation. In some cases, reduced disclosure requirements provide opportunities to add more information, while others have asked actuaries to provide brief disclosures for use in financial statements.

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Though the two new ASUs should result in fewer disclosures required in an organization's financial statements, new disclosures may need to be added in some situations.

Summary

Looking through the note disclosures makes it easier to decide what to disclose and what to keep out of your financial statements. Need help deciding what disclosures to include? Contact SVA.

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