On December 18, the Financial Accounting Standards Board (FASB) continued deliberations and tentatively decided to require all Not-For-Profit (NFP) entities to report expenses by functional and natural classification within their financial statements. Currently, all NFPs are required to report expenses by functional classification, but not by nature (salaries, benefits, repairs, etc.).
Initially, this requirement was not expected to apply to institutions of higher education, where the majority of their revenue comes from tuition, grants, and endowment returns rather than support in the form of contributions from the general public. The majority of college and university financial statements that were reviewed during deliberations presented only expenses by function. This added natural expense reporting will require some additional effort which should be limited since most manage their operations by natural expense already. A related issue facing colleges and universities today is the outdated National Association of College and University Business Officers (NACUBO) functional expense definitions which make consistent categorization across institutions difficult. NACUBO is currently reviewing these definitions and considering updates. The following are the tentative decisions made by FASB for reporting expenses by all NFPs:
An exposure draft is expected to be issued in the first half of 2014.
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