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The Financial Accounting Standards Board (FASB) routinely updates its standards on a variety of issues. Controllers, accountants and others must remain updated on the latest developments to make sure their accounting practices meet the latest Generally Accepted Accounting Principles (GAAP). Most of the recent changes to FASB standards have not had much direct impact on nonprofit organizations. A few recent changes, however, could affect the nonprofit sector. This article will describe the FASB’s function, explain what it does and describe recent and current changes that nonprofits should understand.

What Is the Financial Accounting Standards Board?

The FASB is not a government agency. It is a private organization run by a nonprofit. Its purpose is to establish and monitor GAAP, and to make improvements to GAAP when necessary. Many organizations accept the FASB’s standards as authoritative. This includes the American Institute of CPAs and every state’s Board of Accountancy.

Are FASB Standards Mandatory or Binding?

The question of whether FASB standards are binding is complicated. They are legally binding on some businesses and other organizations. Nonprofits may be obligated to follow GAAP, and therefore FASB standards, because of contractual agreements or other commitments.

Since the FASB is not part of the government, the FASB has no direct legal authority over anyone. It merely maintains and updates accounting standards. Those standards may have the force of law for other government bodies, though. For example, the U.S. Securities and Exchange Commission (SEC) considers the FASB to be the authority on GAAP for publicly traded companies. This means that FASB standards have regulatory force for companies that are under the SEC’s jurisdiction.

Tax-exempt nonprofit organizations must follow IRS reporting requirements to maintain their tax-exempt status. These requirements are not quite the same as the FASB’s standards. That said, nonprofit organizations that follow FASB standards can be assured they are also following the IRS’s requirements.

Some nonprofit organizations have a specific legal obligation to follow FASB standards. It depends on whether any government agencies that regulate them require GAAP. The U.S. Department of Education, for example, requires nonprofits under its jurisdiction to submit to audits that apply FASB standards.

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How Do FASB Standards Affect Nonprofit Organizations?

Even if a nonprofit is not obligated by law to follow FASB standards, it is often a good idea for them to do so. The FASB devotes a considerable amount of attention to accounting issues that affect nonprofit organizations. Since 2009, it has maintained a Not-for-Profit Advisory Committee (NAC). It also has a Not-for-Profit Resource Group that supports the NAC.

Situations when a nonprofit could benefit from FASB standard compliance include the following:

• A contract requires FASB-compliant financial statements and audits.
• Donors or grantmaking organizations insist on FASB-compliant statements and reports.
• An organization wants to promote transparency by making FASB-compliant statements available to interested parties or the public.

Recent Changes to FASB Standard That Could Affect Nonprofits

Several recent Accounting Standards Updates (ASUs) from the FASB could affect nonprofit organizations. Additionally, nonprofits might want to follow an ongoing FASB project that might result in one or more ASUs in the near future.

Common Control Leases

The FASB issued ASU 2023-01—Leases (Topic 842): Common Control Arrangements in March 2023. This ASU updates Accounting Standards Codification (ASC) 842, which deals with leases. This includes leases for real property, such as office or warehouse space, and personal property, such as vehicles or equipment.

Neither ASC 842 nor the update define “common control.” The term typically refers to a transaction between two entities that have common ownership or management. In the context of nonprofits, this might involve two organizations under a common umbrella organization.

The old standard required organizations to account for leases based solely on their “legally enforceable terms and conditions.” The update allows them to look at the entire written agreement. Nonprofits can provide additional clarification to the written terms of a common control lease agreement, provided it does so in writing.

The update also addresses common control leases that have a shorter duration than the useful life of improvements on the leased property. If improvements are not fully amortized by the end of the lease, the update says the remaining value of those assets revert to the lessor.

Crypto Assets

The FASB issued ASU 2023-08—Intangibles—Goodwill And Other—Crypto Assets (Subtopic 350-60): Accounting For And Disclosure Of Crypto Assets in December 2023. This update addresses the role of cryptocurrency as both a type of currency and an appreciable asset.

Prior to the update, GAAP only required businesses and organizations to record cryptocurrency at costs. The update provides for adjustments for fair market value.

Software Costs

The FASB began looking into software costs as part of its Accounting for and Disclosure of Intangibles research project in late 2021. This applies to accounting for internal-use software. FASB staff are reportedly working on a proposed ASU addressing this issue.

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