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EXPOSURE DRAFT: FASB to Propose Changes to Not-for-Profit Financial Reporting

by Ryan Adams - Staff Accountant

  Print Version

The Not-for-Profit Advisory Committee (NAC) was founded by the Financial Accounting Standards Board (FASB) in 2009. The NAC was established to work closely with FASB in an advisory capacity to develop financial accounting and reporting standards for the not-for-profit (NFP) sector. The NAC has been working for a while on a project that will improve financial information to allow donors, creditors, and other users to evaluate a NFPs liquidity and also assists users with understanding any restrictions placed on a NFPs assets.

The FASB is proposing the following changes to the financial statements for NFP organizations (This list is not all-inclusive; Please refer to the Not-for-Profit Advisory Committee Meeting Minutes for March 10-11, 2014 for additional information. Click the link below.):

  1. Replaces the existing requirement to present the three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) with two classes of net assets: with donor-imposed restrictions and without donor-imposed restrictions. According to the FASB, the intent is to remove the hard-line distinction between temporarily restricted and permanently restricted net assets and focus more on describing differences on the nature of such restrictions like how and when the net assets can be used.

  2. Requires the direct method of reporting cash flows from operating activities. Consequently, the requirement to reconcile the change in net assets to net cash flows from operating activities has been removed. Other notable changes to the statement of cash flows include the following:

    1. Cash receipts of dividends and interest would be classified as investing activities rather than operating activities.
    2. Cash payments of interest would be classified as financing activities rather than operating activities.
    3. Cash receipts from gifts with donor-imposed restrictions for the NFP to acquire or construct long-lived assets for operating purposes would be classified as operating activities rather than financing activities.
    4. Cash payments to acquire or construct long-lived assets for operating purposes would be classified as operating activities rather than investing activities.

  3. Requires that operating expenses be disclosed by both their natural and functional classifications.

The exposure draft is expected to be released in mid-2014 with the final Accounting Standards Update (ASU) likely issued in mid-2015. The effective date for this proposal is still uncertain at this time. We will keep you informed on how these changes will impact your organization.



If you have any questions regarding the article above or any other issue affecting your not-for-profit organization please contact your Blue & Co. advisor or e-mail us at or call us at 800-717-BLUE


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