IASB revises fair value of financial liabilities
The International Accounting Standards
Board has published a proposed set of changes in the accounting standards for financial
liabilities to address what it calls the “
counter-intuitive” effects of fair value measurement.
The proposal follows work that has already been completed on the classification
and measurement of financial assets in the
IFRS 9 standards for financial instruments.
The IASB is proposing limited changes to the
accounting for liabilities, with the changes
mostly confined to the fair value option.
The proposals respond to a viewpoint
expressed by many investors and others in
extensive consultations that the IASB has un-
dertaken. They have told the IASB that vola-
tility in profit or loss resulting from changes
in the credit risk of liabilities that an entity
chooses to measure at fair value is counter-
intuitive and does not provide useful infor-
mation to investors.
Building on that global consultation on
IFRS 9, the IASB sought the views of investors,
preparers, audit firms, regulators and others
on the “own credit” issue. The views received
were consistent with the earlier consultations:
that volatility in profit or loss resulting from
changes in “own credit” does not provide useful information except for derivatives and liabilities that are held for trading.
The IASB is therefore proposing that all
gains and losses resulting from changes in
“own credit” for financial liabilities that an
entity chooses to measure at fair value should
be transferred to “other comprehensive in-
come.” Changes in “own credit” will therefore
not affect reported profit or loss.
to the nonprofit industry to help this sector
identify partner organizations that would be
a good fit in terms of mission, size, culture, or
Often, existing relationships help introduce
the possibilities. Some organizations are part
of a network of affiliated entities; some may
have board members, funders, past execu-
The setting of the governing body is critical
to the future functionality of a joined orga-
nization. A structure that makes decision-
making difficult and requires consensus or
a 50-50 board makeup from the predecessor
entities can create a clunky, cumbersome
governing structure that precludes the timely
execution and implementation of a success-
ful integration. The desire to give all parties
an equal voice will slow the process if there is
no effective leadership to listen, make deci-
sions and move the organization for ward.
MANAGING THE MERGER
For nonprofits that aren’t affiliated with a
larger network, finding the right organiza-
tion to align with can prove challenging. Far
fewer resources are available and dedicated
assets and liabilities. Aside from the valua-
tion requirements, the financial value of an
organization’s operations and its assets and
obligations are critical considerations.
tives or other stakeholders in common; or
some may be competitors in the same market. Sometimes creditors or other funders
can help identify other organizations with
complementary missions, similar populations served, or familiar cultures, among
other criteria that come into play in these decisions. They likely have a broader view of the
community, its needs, and the key players.
Finding the right organization with which to
join forces via consolidation, venture or other
vehicle is merely the first in countless critical
decisions if success is to be achieved.
The right advisors are critical for ensuring appropriate consideration of all factors.
Numerous matters require careful deliberation for a successful transaction, and they are
universally applicable across all organizations. One is the fact that SFAS 164 (ASC 810-
158) may increase the costs of transactions
that are considered acquisitions, since fair
value needs to be determined for acquired
In business combinations between nonprofits, efficiency isn’t everything at the end of the
day. Nonprofits truly have different needs,
different operational characteristics, and very
different missions. No nonprofit should ever
lose sight of its important quantitative metrics — meals served, children mentored, or
the underserved supported — but efficiency
and financial measures do matter. Nonprofits are businesses in the end, and, in many
ways, they need to run like any other business. Without proper fiscal concern, organizations can fail, and all their intended good
works would go unfinished.
A financially strong nonprofit organization can weather more storms, increase its
reach, and afford important stewardship
and compliance processes without devoting an unbalanced portion of its efforts. Periodic evaluation of financial and operational
performance metrics is key to ensuring the
health and success of an organization, and
provides a chance to reconsider or re-affirm
its strategy and direction.
For those that are struggling, now may be
the time to look to strategically align with an
organization that shares their values, culture
and mission, while maintaining continuity
of service. AT