Proposed Nonprofit Financial Statement Format Changes

On April 22, 2015, the FASB issued a proposed Accounting Standards Update (ASU) entitled Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities.  The proposed ASU is intended to improve the financial reporting of not-for-profit entities (NFPs) and to provide more useful information to the donors, creditors, grantors and others that use these financial statements. The proposed ASU is applicable to all NFPs.
The proposed ASU would add new requirements or replace existing requirements in Topic 958, Not-for-Profit Entities and Topic 954, Health Care Entities.  These changes include:

  • Changing the current presentation of net assets from the 3 classes of net assets (unrestricted, temporarily restricted and permanently restricted) to presenting 2 classes of net assets (with donor-imposed restrictions and without donor-imposed restrictions) on the face of the statement of financial position and the statement of activities.
  • Disclosing the nature and amounts of donor-imposed restrictions; focusing on how and when the net assets can be used.
  • Adding two additional subtotals in the statement of activities to reflect the operating excess before and after the internal transfers that are a result of board designations, appropriations and similar transfers that are self-imposed limits on the use of resources.
  • A requirement to disclose information about the amount, purpose and types of transfers of board designations of net assets.
  • Reporting underwater endowments within the proposed “with donor-imposed restriction” class of net assets.  An NFP would also be required to disclose the board’s policy on spending from underwater endowment funds and the determination of the original gift amount and the aggregate amount by which the funds are underwater.
  • Preparing the cash flow statement using the direct method for operating cash flows and re-categorizing items to better align “operating” cash flows with the statement of activities.
  • Requiring all NFPs to report expenses by both their nature and function either on the face of the statements of activities, in a separate statement of functional expenses, or within the notes.
  • Presenting investment expense netted against the investment return but removing the requirement to disclose netted investment expense.
  • Requiring the disclosure of quantitative and qualitative information that is useful in assessing liquidity.

The FASB encourages feedback from all nonprofit organizations.  Comments may be made online at and all comments must be received by August 20, 2015. The effective date of these changes will be determined by the FASB after considering all feedback received on this proposed ASU.
If you have any questions or need additional information, please contact your AAF Partner, or Hui-Ting Grady, CPA, at 774.512.4106,

About the Author

Hui-Ting Grady
Hui-Ting has extensive experience providing assurance solutions to diverse nonprofit organizations, including: affordable housing development projects with HUD requirements, multi-service human & social services providers, and behavioral health agencies. She delivers audits in accordance with Uniform Guidance/Single Audit and Government Auditing Standards, as well as Uniform Financial Report (UFR) and other funding source regulations. Hui-Ting is a member of AAF’s Accounting and Assurance (A&A) Committee, and Revenue Recognition Task Force. She is dedicated to keeping the firm and clients apprised of regulatory changes and new pronouncements in a proactive and timely manner, as well as providing best practice recommendations for efficient and effective implementations of new accounting standards.

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