In an effort to improve how nonprofits present their financial statements, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. This standard changes how a nonprofit organization categorizes its net assets, as well as the information presented in financial statements needed to assess liquidity, financial performance, and cash flows. The changes are intended to help donors, grantors, creditors, and other financial statement users by providing more transparency and less complex information.

Summary of Changes

Net asset classification.

The updated standard reduces the number of net asset classes from three (unrestricted, temporarily restricted, and permanently restricted) to two. The new categories are net assets with donor restrictions and net assets without donor restrictions. Footnotes will be required to include the composition of net assets with donor restrictions and also the timing and nature of the restrictions. In keeping with current requirements, disclosures should show an analysis by time, purpose, and perpetual restrictions.

Underwater endowments.

Endowments that have a current fair value that is less than the original gift amount, or “underwater endowments,” will now be required to report underwater amounts of donor-restricted endowment funds as net assets with donor restrictions instead of the unrestricted net assets category. Newly expanded disclosures include the original amount of the endowment, the policy regarding spending from these funds, and whether or not the policy was followed.

Liquidity and availability of resources.

The standard requires the nonprofit to disclose qualitative information regarding how it manages liquid available resources to pay for general expenditures within one year of the balance sheet date. For the same general expenditures, quantitative information is now required on the availability of financial assets to meet cash needs.

Expenses and investment return.

To help readers assess how a nonprofit uses its resources, the new standard requires that the function and nature of expenses be reported and analyzed. Nonprofits will be required to present investment return net of all related external and direct internal expenses. Disclosure of netted expenses is no longer required.

Operating cash flows.

Continuing with previous methods, the standard permits nonprofits to choose between using the direct or indirect method for presenting operating cash flows. But organizations that use the direct method are not required to present the indirect method reconciliation.

Board-designated net assets.

For resources with self-imposed limits mandated by the board (known as board-designated net assets), nonprofits will have to disclose the amounts and purposes of the designations.

Long-lived assets.

In the absence of donor stipulations, nonprofits will be required to use the placed-in-service approach for the expiration of restrictions on gifts of cash or other assets used to acquire or construct a long-lived asset. Use of the over-time approach for the expiration of restrictions on capital gifts won’t be allowed.


We’re here to help your organization analyze and implement the new standard. Please contact us for assistance.