NOT-FOR-PROFIT ADVISORY COMMITTEE MEETING FASB Offices; Norwalk, Connecticut

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1 - NOT-FOR-PROFIT ADVISORY COMMITTEE MEETING FASB Offices; Norwalk, Connecticut March 2 and 3, 2017 Agenda (as of February 23)* Meeting Chair: Jeff Mechanick, FASB Assistant Director Thursday, March 2, 2017, Day 1 1:00 1:10 pm (10 minutes) 1:10-2:30 pm (80 minutes) Opening of NAC Meeting: Introductory Remarks and Meeting Objectives Introductions and welcome of new members Objectives for this NAC meeting Topic 1: Presentation of Financial Statements of Not-for-Profit Entities (ASU ) Discussion of implementation questions with ASU , including liquidity and availability Other implementation topics Discussion on Phase 2: continuing to wait or proceeding with redeliberations 2:30-3:15 pm (45 minutes) Topic 2: Implementation of Other New ASUs Will discuss with the NAC any implementation issues or questions on recently issued ASUs: o Revenue from Contracts with Customers o Leases o Financial Instruments Recognition and Measurement; and Measurement of Credit Losses o Other ASUs *Times are approximate Agenda March 2 and 3, 2017 NAC Meeting, pg. 1

2 3:15 3:30 pm (15 minutes) 3:30 4:15 pm (45 minutes) 4:15 5:15 (60 minutes) BREAK Topic 3: Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Project Overview of the project Update from the February 22, 2017 Board Meeting including: o Key decisions o Any areas left to be redeliberated Setup and instructions for the Breakout groups Breakout Groups (Closed session) NAC members will be presented with tasks to be determined 5:15 PM ADJOURNMENT OF DAY 1 *Times are approximate Agenda March 2 and 3, 2017 NAC Meeting, pg. 2

3 - NOT-FOR-PROFIT ADVISORY COMMITTEE MEETING FASB Offices; Norwalk, Connecticut March 2 and 3, 2017 Agenda (as of February 23)* Meeting Chair: Jeff Mechanick, FASB Assistant Director Friday, March 3, 2017, Day 2 8:00 9:30 am (90 minutes) 9:30 9:45 am (15 minutes) 9:45 10:00 am (15 minutes) 10:00 am 11:00 am (60 minutes) Topic 3 (cont): Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Project Report-outs and Discussion Breakout groups will report out and the NAC will discuss their suggestions and observations Gather information from the NAC that would be helpful in next steps including drafting the Exposure Draft Acknowledgement of Departing NAC Members BREAK Topic 4: Update on Other Ongoing Projects at the FASB Update and solicit feedback from the NAC on current exposure drafts and other projects currently in process and the corresponding implications these ongoing projects might have on the not-for-profit sector. Relevant projects include: o Simplifying the Balance Sheet Classification of Debt o Collaborative Arrangements o Cloud Computing o Accounting for Financial Instruments: Hedging o Other Projects 11:00 am 11:45 am (45 minutes) Topic 5: Recent Trends, Concerns, and Observations; and Items for the NAC s Future Agenda Discussion of trends, concerns, and observations o Including definition of Collection (issue identified at last NAC meeting) How the NAC might help in identifying and shaping longer-term initiatives to improve financial reporting that might be taken up by FASB or others How the NAC would like to focus its efforts over the next few years (preliminary discussion) *Times are approximate Agenda March 2 and 3, 2017 NAC Meeting, pg. 3

4 11:45 am 12:00 pm WRAP-UP AND CONCLUSIONS (15 minutes) 12:00 pm ADJOURNMENT OF MEETING *Times are approximate Agenda March 2 and 3, 2017 NAC Meeting, pg. 4

5 Not-for-Profit Advisory Committee Meeting March 2,

6 Agenda: Day 1 1:00 1:10 pm 1:10 2:30 pm Opening of NAC Meeting: Introductory Remarks and Meeting Objectives Topic 1: Presentation of Financial Statements of Notfor-Profit Entities (ASU ) 2:30 3:15 pm 3:15 3:30 pm 3:30 4:15 pm 4:15 5:15 pm Topic 2: Implementation of Other New ASUs Break Topic 3: Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Breakout Groups 5:15 pm Adjournment of Day 1 2

7 Agenda: Day 2 8:00 9:30 am 9:30 9:45 am 9:45 10:00 am 10:00 11:00 am 11:00 11:45 am 11:45 am 12:00 pm Topic 3: Revenue Recognition of Grants and Contracts by Not-for-Profit Entities (continued) Acknowledgement of Departing NAC Members Break Topic 4: Update on Other Ongoing Projects at the FASB Topic 5: Recent Trends, Concerns, and Observations; and Items for the NAC s Future Agenda Wrap-up and Conclusions 12:00 pm Adjournment of Meeting 3

8 Topic 1: Presentation of Financial Statements of Not-for-Profit Entities (ASU ) 4

9 ASU No , Presentation of NFP Financial Statements Project Objective: simplify and improve how an NFP classifies its net assets, as well as the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows. As a result of feedback received on the Exposure Draft, the Board split this project into 2 phases. ASU is the culmination of Phase 1. Items left for Phase 2 include: Whether to require a measure of operations How to define a measure of operations Potential realignment within the statement of cash flows 5

10 Key Provisions of ASU (Phase 1) Net Asset Classification Updated net asset classification scheme to two classes, changes to underwater endowment accounting, enhanced disclosures Liquidity & Availability Quantitative & qualitative disclosures about liquidity and availability of resources Expenses Requirement to report expenses by function (already required), nature, and an analysis showing the relationship between function and nature Statement of Cash Flows Continue to allow direct or indirect method for operating cash flows; indirect reconciliation no longer required for direct method Investment Return Present investment return net of external and direct internal investment expenses, no longer required to disclose netted expenses Effective Date: Fiscal years beginning after 12/15/2017 6

11 Topic 2: Implementation of Other New ASUs 7

12 BREAK 8

13 Topic 3: Revenue Recognition of Grants and Contracts by Not-For-Profit Entities NAC meeting March 2-3,

14 Rev. Rec. of Grants and Contracts by NFPs - Background Project added to FASB s Technical Agenda to improve and clarify existing guidance ASU , Topic 606 (Revenue from Contracts with Customers), including related disclosures, heightened the issue Raised question as to whether grants and contracts are in scope of that guidance (reciprocal or nonreciprocal) Long-standing diversity in practice in classifying grants and contracts, particularly from governmental entities Issue 1: Reciprocal vs. Nonreciprocal Issue 2: Conditional vs. Unconditional Many NFPs treat federal grants/contracts with governmental entities as exchanges (regardless of substance) Some equate the government with general public-- issue is whether government receives direct commensurate value in return (because the public benefits) Many believe the government doesn t give contributions Stakeholders find it difficult to distinguish between a conditional and unconditional contribution causing diversity in application If funds are provided with certain stipulations, there s difficulty in distinguishing whether contribution is conditional, restricted, or both. Diversity in application of remote notion whether likelihood of failing to meet a condition is remote. (Some NFPs believe any condition within their control has remote likelihood of not being met.) 10

15 Accounting for Grants and Contracts Issue 1 Who Receives the Benefit? Current Practice Direct Commensurate Value to Resource Provider EXCHANGE Specified Third Parties General Public Proposed Clarification EXCHANGE NONEXCHANGE Direct Commensurate Value to Resource Provider Specified Third Parties Government/Resource Provider is 3 rd Party Payer on Behalf of a Customer* Follow Topic 606 (or other, such as Leases) Continue to monitor GASB and IPSASB projects in this area** General Public Follow Topic *The revenue recognized would actually be the underlying contract s patient service revenue, tuition revenue, etc. **A focus on whether or not there is a performance obligation could even ultimately include some contracts where the general public is the primary beneficiary. 11

16 Recent Board Decisions on Issue 1 December 14, 2016 Board Meeting: Distinguishing between those grants and similar contracts that should be accounted for as nonreciprocal transactions (contributions) and those that should be accounted for as reciprocal transactions (exchanges) Tentative Board Decisions: The Board decided to clarify and refine existing guidance in Subtopic by adding paragraphs that would clarify the scope of the Subtopic as well as illustrative examples. Clarification of the Scope of Subtopic The resource provider is not synonymous with the general public. If a resource provider receives value indirectly by providing a societal benefit, this would be considered a nonreciprocal transaction. If the primary beneficiary of a grant or contract is a third party, an NFP must use judgment to determine if the transaction is reciprocal or nonreciprocal. Furthering a resource provider s mission or feel good sentiment as a donor does not constitute commensurate value received. The type of resource provider should not override the substance of the transaction. 12

17 Issue 2: Conditional vs. Unconditional Contributions (discussed at February 22, 2017 Board meeting) For a Donor-Imposed Condition to Exist: Tentative Board Decision (TBD) -A right of return must exist; and -The agreement must include a barrier Indicators and examples to help in determination Alternative Rejected -A right of return must exist. -Would have required a probability assessment about whether it is likely a recipient NFP will fulfill the stipulations. 13

18 Indicators to Determine a Barrier To determine what is a barrier, an NFP would consider indicators, which would include, but are not limited to, the following (Refer to paragraph 11 of the handout): Measurable performance-related or other barrier (measurable barrier): The agreement includes a measurable performance-related or other barrier. Excludes Barriers Unrelated to the Primary Purpose of the Agreement: This would generally exclude administrative tasks and trivial stipulations. Limited Discretion: The recipient NFP has limited discretion over how the transferred assets should be spent. This would exclude situations in which the only requirement by the resource provider is that the transferred assets be spent for or example, not to be used for general operating purposes which could include amounts restricted for ongoing programs/activities. Additional Actions: The recipient NFP would need to undertake significant additional identified actions it otherwise would not have taken to be entitled to the transferred assets. 14

19 Timeline of the Project Vetting of TBD on Issue 2 with NAC, others; also bring back additional topics: disclosures, transition and effective date, costs and benefits, and sweep issues Complete Redeliberations by end of 2017 Issue Proposed Update in 2Q 2017 Final ASU early

20 Questions for NAC members 1. Do you have any initial comments on the Summary of Board Decisions reached at its February 22, 2017 meeting (i.e., the current direction of the Board on Issue 2)? 2. Do you believe that the decisions reached relating to Issue 2 will provide clarifying guidance that could be operable in practice? 3. Due to the varying types of arrangements, a barrier would be described using a table of indicators to allow judgement based on individual facts and circumstances. Do you agree with this approach? What changes would you make, if any, to the proposed indicators? 16

21 Breakout Groups 17

22 Not-for-Profit Advisory Committee Meeting March 3,

23 Agenda: Day 2 8:00 9:30 am 9:30 9:45 am 9:45 10:00 am 10:00 11:00 am 11:00 11:45 am 11:45 am 12:00 pm Topic 3: Revenue Recognition of Grants and Contracts by Not-for-Profit Entities (continued) Acknowledgement of Departing NAC Members Break Topic 4: Update on Other Ongoing Projects at the FASB Topic 5: Recent Trends, Concerns, and Observations; and Items for the NAC s Future Agenda Wrap-up and Conclusions 12:00 pm Adjournment of Meeting 2

24 Report-Outs 3

25 Acknowledgement of Departing NAC Members 4

26 Break 5

27 Topic 4: Update on Other Ongoing Projects at the FASB 6

28 Simplifying the Balance Sheet Classification of Debt (Current vs. Noncurrent) 7

29 Simplification Initiative Objective Reduce cost and complexity while maintaining or improving the usefulness of the information Projects include narrow-scope items Exposure Draft issued January 10, 2017 Comment period ends May 5,

30 Simplifying the Balance Sheet Classification of Debt (Current vs. Noncurrent on a Classified Balance Sheet) Current Guidance Proposed Change What? Narrow scope rules on specific types of debt arrangements Overriding principle for the classification of debt that can apply to all arrangements* How? Mix of guidance using contractual maturity and management judgments Increase focus on contractual maturity and borrower s rights less focus on judgment or intent When? Some circumstances considered as of the financial statement issuance date, while others use the reporting date Criteria considered as of the reporting date This proposed change is simpler and more transparent than current GAAP Includes convertible debt and liability classified mandatorily redeemable instruments Waivers of Debt Covenant Violations are an exception to the proposed principle 9

31 Simplifying the Balance Sheet Classification of Debt Proposed Classification principle Debt would be classified as a noncurrent liability if either of the following criteria are met as of the balance sheet date: - Liability is contractually due to be settled more than one year (or operating cycle, if longer) after balance sheet date. - Entity has contractual right to defer settlement of liability for at least one year (or operating cycle, if longer) after balance sheet date Key Impacts: - Waivers of Debt Covenant Violations - Refinancing - Subjective Acceleration Clauses 10

32 Waivers of Debt Covenant Violations Current Guidance A liability will be classified as noncurrent unless: A violation that gives the lender the ability to call the debt has occurred at the balance sheet date or would have occurred absent a loan modification It is probable that the borrower will not be able to cure the default at measurement dates within the next 12 months Proposed Guidance A liability will be classified as noncurrent if: The liability is contractually due to be settled or can be deferred for at least a year after the balance sheet date A waiver of the violation has been obtained before financial statement issuance The waiver does not result in an extinguishment or troubled debt restructuring It is not probable that any other covenants will be violated within 12 months of the balance sheet date There is an exception in GAAP today for waivers and there will still be an exception in GAAP under the proposal, but there are some differences 11

33 Examples of Key Changes: Refinancing Current Guidance Short-term debt at the balance sheet date that is refinanced to long-term debt (or replaced by an equity issuance) after the balance sheet date but before the financial statements are issued should be classified as a noncurrent liability Proposed Guidance An entity cannot consider a subsequent refinancing when determining the classification of debt because these transactions are Type 2 subsequent events The subsequent refinancing provides evidence about conditions that did not exist at the balance sheet date A subsequent refinancing of short term debt with the issuance of equity securities would no longer affect the classification of debt 12

34 Examples of Key Changes: SACs Under current guidance, the balance sheet classification of debt depends on the likelihood of acceleration of the due date based on the triggering clauses. Reclassification or disclosure are not required if the likelihood of acceleration is remote. Under proposed guidance, because the probability assessment would be removed, these clauses would impact the balance sheet classification of debt only when the acceleration clause is triggered 13

35 Collaborative Arrangements 14

36 What is a collaborative arrangement? ASC (formerly EITF 07-1) - A contractual arrangement that involves a joint operating activity. These arrangements involve two (or more) parties that meet both of the following requirements: a) They are active participants in the activity b) They are exposed to significant risks and rewards dependent on the commercial success of the activity - The joint operating activities might involve joint development and commercialization of intellectual property, a drug candidate, software, computer hardware, or a motion picture. - Legal entities are outside the scope of Topic

37 Industries impacted Pharma/Life Sciences R&D, manufacturing and commercialization Film/TV TV/movie production and distribution Software/Technology development and distribution Healthcare/hospital facility and management Telecom network share, networking product development Oil/gas exploration and drilling Aerospace/defense R&D, manufacturing Utilities joint plant operations, wind and solar farm tax equity deals 16

38 Summary of agenda request Topic 808 does not include guidance on recognition and measurement of transactions between collaboration partners - Diversity in practice on recognition, measurement and presentation of transactions between partners - Upfront fees are recognized over different periods Diversity in practice on whether to apply revenue standard to all, none or part of a collaborative arrangement - Reimbursement of R&D costs viewed as revenue by some companies and contra expense by others - Upfront fees may or may not be allocated to other elements of arrangement 17

39 Project status Added to agenda in November 2016 Board voted in favor of Path 1 - Path 1 - Clarify the interaction between Topic 808 and Topic 606 by providing criteria in Topic 808 for determining when transactions in a collaborative arrangement are within the scope of revenue guidance. - Path 2 - In addition to clarifying the interaction between Topic 808 and Topic 606 (i.e. Path 1), also amend Topic 808 to provide recognition and measurement guidance for collaborative arrangements. Research for initial deliberations is underway 18

40 Implementation Costs incurred in a Cloud Computing Arrangement 19

41 Implementation Costs incurred in a Cloud Computing Arrangement Issue Accounting Standards Update No did not provide guidance on accounting for implementation, setup and other upfront costs (implementation costs) incurred in a cloud computing arrangement that is considered a service contract. Current Status Discussed at November 2016 Agenda Prioritization Meeting Board asked EITF Chairman to establish an EITF Working Group Working Group meeting held January 27,

42 Cloud Computing Arrangements - Questions for NAC 1. Are implementation costs incurred in a cloud computing arrangement a prevalent concern? Are the amounts material? 2. What is the current practice for accounting for these types of implementation costs? 3. Would providing guidance on implementation costs associated with a cloud computing arrangement where there is no software license be helpful? Expense all implementation costs as incurred Recognize as an asset or an expense when incurred based on existing guidance (Topic 340, Subtopic , Topic 606, Subtopic ) Other 21

43 Targeted Improvements to Accounting for Hedging Activities 22

44 Project History May 2007 Added project May 2010 Issued ED Sept. 8, 2016 Issued ED June 2008 Issued ED Q1 Q Project reactivated Redeliberations and issuance of final ASU 23

45 Hedge Accounting Proposed ASU Hedge of Nonfinancial Item Hedge of Financial Instrument For Qualifying Hedging Relationships Fair Value Hedge Hedge of inventory Swap fixed rate debt to floating NEW: Entire derivative gain or loss is required to be presented in the same income statement line item as hedged item Basis of hedged item adjusted for changes in FV attributable to hedged risk--also through earnings Basis adjustment offsets derivative mark to earnings Cash Flow Hedge Hedge of forecasted purchase or sale of inventory Swap floating rate debt to fixed NEW: Entire derivative gain or loss is deferred in OCI except for amounts excluded from the assessment of effectiveness. (Under current GAAP, only the effective portion is deferred in OCI). NEW: Gain or loss previously deferred in OCI is reclassified into the same income statement line item as hedged item in the reporting period when the hedged item affects earnings. The concept of separately recording ineffectiveness will be eliminated 24

46 Hedged Item Hedged Item Component Hedging Nonfinancial Items Eligible Hedged Risks for Non-Financial Items Existing Guidance Proposed Amendments Variability in total cash flows or overall changes in fair value New: Variability in a contractually specified component OR Variability in total cash flows or overall changes in fair value Note: The proposed amendments do not modify the guidance on hedges of foreign exchange risk 25

47 Component Hedging Indexes Eligible to be Designated in a Hedge of Interest Rate Risk * The contractually specified rate and Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate are newly allowed based upon the proposed amendments 26

48 Other Simplifications Hedge Documentation Up to three months to perform initial quantitative effectiveness test. Qualitative Testing Allowed after an initial quantitative test at hedge inception if certain conditions are met. Shortcut Method Long-haul method may be used if use of the shortcut method was not or no longer is appropriate. Critical Terms Match When hedging a group of forecasted transactions, the timing of the derivative and transactions can be considered to match, if the transactions occur and derivative matures within a 31-day period. 27

49 Proposed Disclosure Amendments Board decided to amend disclosure requirements to align information provided with changes to the overall hedging model and provide information to users that focuses on the magnitude of the effect of hedging on financial statements 1 2 Certain tabular disclosures required in Topic 815 would be amended to focus on the impact of hedge accounting on income statement line items. An entity would be required to provide additional disclosure related to cumulative basis adjustments for fair value hedges. Users understand impact and magnitude of hedging activities on financial statements 28

50 Questions or Comments? 29

51 Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost 30

52 Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Background Net benefit cost contains several components with different nature No GAAP guidance on presentation Reduced predictive value and usefulness of information to users Board added project Presentation of net benefit cost in the income statement (retrospectively application) service cost in the same line item or items as other current employee compensation costs remaining components in a separate line item or items outside operating items, if applicable Capitalization of only service cost in assets (prospective application) Final ASU expected by end of Q

53 Topic 5: Recent Trends, Concerns, and Observations; and Items for the NAC s Future Agenda 32

54 Wrap-Up and Conclusions 33

55 Topic #5 March 2017 NAC Meeting Survey Summary 1. What environmental (political, legal, economic, regulatory, cultural, or other) factors or trends are likely to have the greatest impact on not-for-profit organizations (or on GAAP NPO financial reporting) within the next year? The "Trump Bump" has many endowment portfolios moving back above water... I'm expecting to see renewed interest in reporting growth of undistributed earnings (as a result of spending rule limitations) in a way that won't look like NFPs are "hoarding money". Not sure if this is really a FASB issue by itself though, more an industry disclosure best practice matter. The emergence of "Evergreen Giving Platforms", which are portals for both making and reporting charitable giving by individuals is causing the old norms of who reports revenue and when to go out of the window. Most of these platforms are offered by forprofit pledge processing companies that use a shell NFP as cover and operate what for all intents and purposed is a Federated Fundraising Campaign model but legally is structured as a Donor Advised Fund. I can expand on this further but the main problem is who records a gift from a donor, as opposed to a grant from another charity when from the outside it looks exactly like an agency transaction. We are very concerned about many of the potential impacts of a changing administration on areas of our work including civil justice and the environment among other. Negative impact on funding flows and shifting regulatory environments could affect certain of our NFP grantees and we/others may need to step in where that Govt funding has shifted. This gets even more complicated if the market is negatively impacted (with issues such as rising interest rates) which, in turn, impacts our returns and grant-making budget. We have heard from several of our NFP clients who are already significantly impacted. For example: 1) one NFP who works with refugees has received notice they are losing a lot of their funding; and 2) another NFP who provides low income services in a predominantly Hispanic neighborhood are facing a problem with their clientele not willing to come to their center to receive services anymore out of fear of being detained. Another issue shared by a large accounting firm with us is the NFP 's need guidance on whether the IRS will require entities to file for a change in tax method when they adopt the new revenue recognition standard, but the IRS cannot issue that guidance because the administration has placed a ban on issuing new regulations. For our higher education work: 1) many higher education institutions have been commenting on the potential impact to their international students and their Visas. 2) the education community is also closely watching the new administration - whether there will be any significant changes to the Higher Education Authorization Act, impact to student financial aid (consolidating loan packages, changing current student loan structures, etc.) 3) There was also a lot of communication and training around Department of Labor's overtime rules that were to be implemented 12/1/16 and then delayed/canceled. NFP's / Higher Ed spent a lot of time on this, changing pay and procedures, only to not actually have to implement the new rules. Repeal or amendment of the Johnson Amendment could erode the public trust in the sector's mission as nonpartisan problem solvers.

56 Topic #5 I think the uncertainty created as a result of the election of President Trump will have an impact on not-for-profit organizations, especially the ones that work in the areas of healthcare and immigration rights. Uneasiness and uncertainty has it seems, caused many of our not-for-profit leaders to become distracted. Overall, political uncertainty regarding revenues, including contributions as well as grants. Will the funding be there for organizations that received most of their revenues from granting agencies. Also, concerning foundations and their ability to give as much as in the past, based on investment returns. Obviously this is based on economy, political and regulatory changes/factors. ACA and all the uncertainly around healthcare -Concern for future organization budgeting Most are concerned about the current political climate related to federal funding. Since I work in Illinois, most are concerned about keeping their doors open since the State is taking 6-9 months to pay for contracted services. For NFPs that receive federal grants and contracts, the current ambiguity around the amount of funding and how it might change under the Trump administration is a cause of concern. Additionally, potential changes to compliance requirements for federal funding and the current lack of concrete guidance on where this is heading is a concern. Potential significant changes in healthcare reform under the new administration could have a significant impact not only on NFP healthcare organizations but also the overall economy. Tax reform, NFP/FP joint ventures, NFP mergers Deductibility of charitable contributions Research funding Federal involvement in the use of endowment funds and potential taxation Federal involvement in the cost of higher education and penalties The potential elimination of the EPA and Department of Education and potential changes in personal tax deductions for charitable contributions. With respect to the potential elimination of the federal Department of Education, this could lead to more reliance on state budgets to provide aid to colleges/universities, possibly new onerous regulations and reporting compliance requirements. Further, US Senate House Ways/Means continuing with its efforts to explore potentially requiring mandatory distributions from large endowments at certain annual levels and considering imposing an excise tax on relate returns. Shifting priorities around and funding mechanisms for governmental funding of research, global health and poverty, and student financial aid; impact of tax changes on charitable contributions; impact of ratings, gainful employment rules and other outcome-based measurements on higher education federal funding and rankings; impact of trade, immigration and other policies on international students and faculty; impact of ACA repeal and replace on academic medical centers, employers, and state laws governing single payer systems. For GASB entities, the 2018 implementation of GASB 75 is forcing some to re-think existing benefit structures around OPEB. Aca and tax reform if passed Potential changes in tax laws that remove deductibility of charitable contributions.

57 Topic #5 2. What environmental factors or trends are likely to have the greatest impact on not-for-profit organizations within the next 3-5 years? Evergreen Platforms will continue to create disruption in the sector until IRS takes the matter up. Baby Boomers leaving the workforce with a large amount of stored up wealth will have nonprofits becoming more and more "creative" in finding ways to tap into their wealth before it disappears. This means new challenges trying to properly account for giving done via methods never before imagined. The accountants are going to have to be just as creative and GAAP may have to weigh in to ensure there isn't too loose of interpretation to fit the circumstances. President Trump's proposed cap on the charitable deduction. Not sure... Uncertain geo-political environment. Political factors relating to environmental decisions such as overall infrastructure, pipeline, etc. I think policies coming from the new Administration and their impact on funding. I also think many are concerned about the economy's impact on individuals donors willing to give to nonprofits. The steady flow of baby boomers into retirement will continue to cause challenges to NFPs in planning for and managing succession processes for NFP leadership positions. The continued increase in the millennial generation s influence in consumer buying power is challenging many NFP sectors, particularly arts and cultural organizations, to re-engineer the way they deliver their services to better match the preferences of that generation. NFP organizations are going to have to continually challenge their fundraising strategies to keep pace with current interests and giving trends of millennials (i.e. social media). Possible changes in tax law could impact donor contributions. If the stock market continues the recent trends of solid returns this should provide additional discretionary income, which in turn could result in enhanced donor support for many NFPs. I think there will be a growing trend of NFP and for-profit alliances/joint ventures, etc. NFP/FP joint ventures, NFP mergers Shrinking government could place more reliance and expectations on NFPs to satiate constituent needs for social and human services. Economic conditions that could tighten spending budgets 3. Beyond advising the FASB on its various projects, are there any other financial reporting topics/ issues that you d like to see be part of the NAC s discussions/workplan over the next 2-3 years, to help benefit the NFP sector? If so, which topics/ issues and why? Continue to work toward completion of Phase 2 of the Financial Statements work begun with ASU Complete the work on the Disclosure Framework and give more attention to its application by preparers... we are all going to be trying to find better and better ways to

58 Topic #5 tell our story without creating disclosure overload so the framework should offer more than just yes/no guidance on disclosure, it needs to also offer a conceptual framework for ensuring quality disclosure. It would be great if we could all agree on a simple operating measure. Additional work on clarity on liquidity. May not even be a project, but just a discussion. In my opinion, cash management and reporting and revenue recognition, both of which on the agenda now. None I can think of at this time, other than phase 2 of the NFP financial reporting topic. Possible reconsideration of MD&A, particularly for larger NFPs to help them tell their story. Not operating measure. I don't think we should require one. I would like to put some thought into micro-lending accounting, where organizations have been straddling the line on whether it is a loan or a grant depending on a future event (repayment or not). It would be helpful to find a way to report these to tell the story in a way that reflects the goal of the transaction. Touchy topic, but I would like to re-engage a discussion on a uniform operating measure I would like the FASB to reconsider adding back to its agenda for consideration a requirement to include as part of the financial statements of NFPs an MD&A. I think this could be a very effective tool in communicating progress toward mission, challenges, successes, needs, etc. Relief on disclosure requirements for frozen defined benefit pension plans.