By Diana Miller 

Changes are finally coming in the content and presentation of financial statements for not-for-profit entities for the first time in almost 20 years. Although nothing has yet been finalized, these fairly significant proposed changes could affect classification requirements, liquidity, financial performance and cash flow, according to the Financial Accounting Standards Board (FASB), the regulatory body that oversees these standards.

The package of proposed Accounting Standards Update (ASU) changes impact “Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities.”

Even more challenging is that the explanation for the ASU is more than 260 pages. If you want to read the entire thing, you can find the latest draft of the document here.

The stated purpose of the changes is to provide more meaningful information and greater transparency for donors, creditors and other users of the information.

Here is a barebones summary of some of the leading changes to financial statements and notes affecting Topic 958, Not-for-Profit Entities and Topic 954, Health Care Entities. 

  • Statement of financial position. In reporting net assets, the current requirement of three classifications of net assets will be reduced to two classes. Current buckets are Unrestricted, Temporarily Restricted and Permanently Restricted. That would be simplified to just two classes: With Donor Restrictions and Without Donor Restrictions.
  • Statement of activities. The requirement would be to present on the face of the statement of activities the amount of the change in each of the two new classes of net assets rather than that of the current three classes. Flexibility will be retained by allowing either a one-statement approach or two-statement approach (separating statement of activities into statement of operations and statement of changes in net assets). In addition, all nonprofits may be required to present expenses by function and by nature on either the statement of activities, as a separate statement, or in the footnotes.
  • Statement of cash flow. The change here would be to potentially require the direct method of reporting instead of the indirect method of reporting. Furthermore, certain items presented on the statement of cash flow would be recategorized into different buckets under the new guidance.
  • Footnote disclosures. Improved disclosures would be made regarding governing board designations, appropriations and similar transfers changing self-imposed limits on the use of resources without donor-imposed restrictions, the composition of net assets with donor restrictions and how the restrictions affect use of the resources, management of liquidity and quantitative information regarding the reporting data about financial assets and underwater endowment funds.

There is a lot more information at the FASB website if you’d like to dig deeper. You can also leave comments via the FASB website until August 20 while the standards organization finalizes its recommendations. 

Diana Miller is Director of the Not-for-Profit practice area at Wiss. She can be reached at or (973) 994-9400.


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