Accounting Standards Update 2025

Credit Loss Accounting Under CECL

Nonprofits should maintain a formal, documented policy for Current Expected Credit Losses (CECL) and revisit it annually to ensure it reflects actual practice.

A recurring challenge is distinguishing credit losses from revenue adjustments. For example, when Medicaid denies a claim because a service is not covered, the denial is in most instances a revenue adjustment—not a credit loss.

It is also helpful to track write-offs separately from changes in reserves within the general ledger. This approach simplifies disclosures and aligns more clearly with reporting expectations.

Starting in fiscal year 2026, the Financial Accounting Standards Board (FASB) is expected to remove the requirement to assess economic conditions for trade receivables—a change that may reduce administrative workload.

New Flexibility for Lease Accounting

Lease accounting standards are now fully in effect, but a recent update offers welcome relief for related-party arrangements. The Financial Accounting Standards Board (FASB) issued a practical expedient allowing nonprofits and private companies to rely on written terms and conditions rather than economic substance when evaluating leases between entities under common control.

This option applies only to agreements documented in writing; verbal arrangements do not qualify. The change may reduce complexity and provide more flexibility for organizations that manage intercompany leases.

Crypto Assets Shift to Fair Value Accounting

Organizations holding digital currencies will see a notable change in how these assets are reported. New guidance moves away from impairment-only accounting and allows crypto assets to be measured at fair value.

This approach becomes effective for calendar year 2025 and fiscal year 2026 year-ends, with early adoption permitted. For nonprofits with significant holdings, the update may offer a clearer and more consistent way to present crypto assets alongside other investments.

Changes to Single Audits and Federal Grant Reporting

Updates from the Office of Management and Budget will ease some federal reporting requirements for nonprofits beginning with fiscal years starting on or after Oct. 1, 2024. The threshold for single audits will increase from $750,000 to $1 million. The capital asset threshold for federal funds will double from $5,000 to $10,000. The de minimis indirect cost rate will rise from 10 to 15 percent.

These changes may simplify compliance but require strategic review. A higher asset threshold could reduce accounting complexity while increasing expenses in the year of purchase. For nonprofits with a negotiated indirect rate near 14 to 16 percent, switching to the new 15 percent de minimis rate may be worth evaluating.

Guidance on Federal Grant Modifications and Cancellations

When a federal grant or contract is modified or canceled, the ripple effects may be felt across an organization. Understanding the terms of the agreement is critical. Costs incurred before the termination date may still be reimbursable, but nonprofits should also assess the likelihood of payment and the broader impact on funding streams, staffing, and service delivery.

These situations often require difficult decisions. Leaders may need to revise budgets quickly, shift allocations, and explore alternative sources of support. Even a temporary disruption may strain operations or affect commitments to program beneficiaries.

From an accounting standpoint, canceled contracts generally result in revenue adjustments not credit losses. But the full picture requires more than technical guidance. It calls for careful planning, timely communication and, often, support from trusted advisors.

Preparing for Change

Navigating financial uncertainty is not new for nonprofits—and never easy. Organizations that stay informed and keep their policies aligned with current standards are better positioned to respond with clarity and confidence. Whether managing CECL updates, evaluating lease terms, or adjusting to changes in federal funding, early preparation may help reduce risk, support continuity of operations, and safeguard mission delivery.

For guidance tailored to your organization, AAFCPAs’ Nonprofit practice is available to support your team.

These insights were contributed by Matthew Hutt, CPA, CGMA, Partner and Jennifer A. L’Heureux, CPA, Manager. Questions? Reach out to our authors directly or your AAFCPAs partner. AAFCPAs offers a wealth of resources for nonprofits. Subscribe to get alerts and insights in your inbox.