One Step Closer to Revised NFP Financial Reporting Guidance

After reviewing the comment letters received in response to the Presentation of Financial Statements of Not-for-Profit Entities exposure draft issued in April 2015, the FASB decided to redeliberate the proposed changes in two phases. Phase 1 focuses on changes not dependent on other FASB projects and phase 2 focuses on all other changes. The results of the initial phase 1 deliberation are as follows:

Decisions Made

  1. Statement of Cash Flow – Not-for-Profits (NFPs) will not be required to use the direct method of presentation. NFPs will continue to have the option of presenting the statement of cash flow using either the direct or the indirect method. If an NFP decides to use the direct method, it will no longer be required to prepare the indirect reconciliation of operating activities.
  2. Net Asset Classes – NFPs will be required to present two classes of net assets on the statement of financial position. Temporarily and permanently restricted net assets will be combined into one class of net assets named “net assets with donor restrictions.” Unrestricted net assets will be renamed “net assets without donor restrictions.”
  3. Underwater Endowments – NPFs will be required to present the aggregate endowment funds that are underwater within “net assets with donor restrictions” versus the current presentation in the unrestricted category. Additionally, NPFs with underwater endowments will be required to disclose its policy to either reduce expenditures or suspend appropriations from underwater funds.
  4. Placed-in-Service Approach – NFPs will be required, in the absence of explicit donor instructions, to use the placed-in-service approach for restrictions to acquire or construct long-lived assets. The over-time approach will be eliminated.

What’s Next

The above decisions are not final until an Accounting Standards Update (ASU) is issued. Check our website or the FASB website ( for the latest developments.

Andrea Wright
Andrea Wright | Partner