FASB
Po Box
Washington DC
Dear Board Members
RE: proposed changes of FASB and the impact of the changes on reporting of financial information
The proposed changes will affect the way profit and not for profit organizations prepare and present financial information. To start with, the balance sheet of not for profit organization will be affected because the three classes of assets i.e. unrestricted, permanently restricted and temporarily restricted assets will no longer be reported in that format. They will be replaced with a simplified model that combines permanently restricted assets and the temporarily restricted assets into one i.e. net asset with donor restrictions. This will make it simple for users of financial statement to identify the restricted and non-restricted assets. However, in the notes to the financial statements, the organization will be required to provide a detailed classification of restricted donor assets. Moreover, the notes will state when and how each of the assets will be used. This makes sure that users of the financial statement are fully informed of the extent of restriction of the organization’s assets and the dates when the restrictions will be relaxed. Besides, the organizations are required to provide a clear explanation on liquid assets that are unavailable for meeting the short-term financial obligations. This will inform the users of financial statements on the ability of the organization to meet current obligations as they fall due. It will be clear when calculating current ratio the current assets to utilize i.e. liquid assets not available to meet current liabilities will no longer be included. Previously, organizations were not required to provide information on the restriction of current assets. The restriction was regarded immaterial. Thus, users of financial statement could not know whether some current assets were restricted. The organizations that will be affected by these reporting changes are cooperatives, health care entities, mutual entities and all NFPS that apply ASC 958.
Leasing reporting will also be affected by the proposed changes. According to the changes, all leases will be reported as both liabilities and assets on the statement of financial position. This is made to give the users of financial information easy time in establishing the long-term financial obligations of the organization leasing vehicles. The operating lease liability will be grouped with other liabilities in the balance sheet. However, the component will not be regarded as a debt. This is because the liability is not a debt. The organization will be required to apportion the rent payment into two so as to determine the liability and asset amounts. Previously, all this information was not included in the financial statements. However, the information was stated in the notes of financial statements, and the users of the information were required to examine the footnotes of financial reports closely to establish the information. Moreover, in full-service leases, there were no liabilities or assets recorded in the financial statement. These changes will be effective in 2019 and leasing companies will assets organizations in adopting the new standards.
The changes proposed by FASB will affect all types of business organization. The proposed changes are made to either make the financial information detailed or simplified to meet needs of the users. It is good that FASB is implementing the proposed changes progressively to give organizations adequate time to adopt the changes.
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