FASB proposes changes in not-for-profit reporting - Financial Accounting Standards Board - includes related article

Healthcare Financial Management, April, 1993 by William R. Titera

Entity focus

The FASB provides that the balance sheet and the income statement "...shall focus on the organizations as a whole." This is consistent with P&P Board Statement No. 8 that calls for single fund reports and, therefore, HFMA supports this focus.

Donor temporary restrictions

The draft statement on contributions requires a donor temporarily restricted contribution to be recorded in temporarily restricted equity even if the contribution is immediately fulfilled. For example, a donor may restrict a contribution to pay for charity service and charity service is provided simultaneously with receipt of the contribution. In this situation, it is still necessary to report an increase in temporarily restricted equity (called "restricted support") and to report a reclassification of that amount from temporarily restricted equity into unrestricted equity. It is also necessary to segregate that amount on the income statement from revenue (using a caption such as "donor support of charity service"), and to use a caption other than "total revenue" for the total which includes this amount (the total could be called something like "total revenue and other support"). This reporting requirement may have some theoretical justification, but the information provided does not seem to warrant the added detail and related effort.

The draft statement also says that a donor's restriction related to long-lived assets in released over the life of the asset. Thus, a reclassification from temporarily restricted equity to unrestricted equity would occur simultaneous with depreciation of the asset. HFMA expressed the view that such treatment distorts the donor's intent by indicating that the donor provided a subsidy over the life of the asset rather than give an asset (or resources to acquire an asset). For this reason and because implementation of this provision would be complex, HFMA urged adoption of the current industry practice to treat the contribution of long-lived assets (or resources to acquire such assets) in the same way as contributed capital is treated as a direct increase in unrestricted equity when the asset is placed in service.

Contributed services

HFMA previously urged that contributed services should be controlled by the donee and should relate to the donee's on-going major or central activities in order to qualify to be recorded and reported. Even these criteria might be broad enough to require that services provided by the medical staff in uncompensated departmental oversight, peer review, credential review, and similar activities be reported as contributed services. HFMA therefore again urged that criteria for recording contributed services be very restrictive to limit the items recorded and to minimize reporting burden.

For contributed services that do not meet the criteria to be recorded and reported, HFMA suggested that an entity be allowed to provide whatever level of disclosure the entity believes is meaningful to financial statement readers. For example, a description of the types of services rendered or the hours of service provided might be meaningful and might demonstrate the interest of the community in the organization.