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FASB’s ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, was issued in an effort to provide more useful information to donors, grantors, creditors, and other nonprofit financial statement users. Additional disclosures are now required for expenses by nature and function, as well as for the liquidity and availability of resources. This article highlights these additional requirements in the reporting disclosures for nonprofit entities.

A summary of the additional nonprofit disclosure requirements aimed at enhancing the presentation of nonprofit financial statements are as follows:

  1. Net Asset Classification: Under the new standard, presentation of the statement of financial position will only include two classes of net assets: Net Assets with Donor Restrictions and Net Assets without Donor Restrictions. The reduction in the number of net asset classes is expected to reduce the complexity, while enhancing the understandability of nonprofit financial statements. This ASU update requires nonprofit entities to disclose information about the nature and amounts of different types of restrictions that impact the timing and use of donor restricted net assets. The new standard also requires nonprofit entities to disclose the amounts and purposes of board designated net assets without donor restrictions. In the case of any self-imposed limits on the use of resources resulting of actions of the governing board, disclosure must be made in the notes to the financial statements.


  1. Liquidity and Availability of Resources: The new standard requires disclosures of qualitative and quantitative information about an entity’s liquidity and availability of resources. Nonprofits are now required to qualitatively describe information useful in accessing the maturity of assets and liabilities as well as how the organization manages liquid resources to meet their cash needs for general expenditures. The disclosures should include quantitative information (i.e. tables, graphs) about the availability of these resources. These additional disclosure requirements will provide the necessary information to users and will increase transparency and promote a more thorough and accurate understanding of the organization’s ability to fund its operations.


  1. Functional Expenses & Allocation: The new standard requires an analysis of expenses by function and nature to be presented in one location in the financial statements. Nonprofit entities have the option to present this information in a separate financial statement or in the notes to the financial statements. Additionally, a qualitative description of the methods used for the allocation of costs among program activities and support functions is required to be included in the notes to the financial statements. The following footnote disclosure is an example which incorporates the new documentation requirements:

“The financial statements report certain categories of expenses that are attributable to one or more program or supporting functions of the organization. These expenses include depreciation and amortization, communications, and technology department. Depreciation is allocated based on square footage, certain costs of communications department are allocated on estimates of time and effort, and technology department is allocated based on specific technology utilized.”

  1. Underwater Endowments: In order to enhance the understandability and usefulness of disclosures for underwater endowments, the new standard requires accumulated losses in endowment funds to be included together with the related fund in net assets with donor restrictions. This differs from current guidance which requires accumulates losses to be included as a reduction of unrestricted net assets. Additional disclosure requirements under the new standard include (1) an interpretation of the relevant state UPMIFA law as to its ability to spend from underwater endowment funds and, (2) the nonprofit’s policy concerning the appropriation of underwater endowment funds.

This new guidance provides for major changes to the presentation and disclosure of nonprofit financial statements for the first time in twenty-five years. Please refer to previous articles from July through November 2018 discussing other significant changes required by the adoption of ASU 2016-14.

Effective Dates:

Nonprofit organizations are required to adopt the changes for fiscal years beginning after December 15, 2017.

For general questions or additional support about implementation, feel free to contact Kristi Yanover, Audit Partner, at, or any member of our Accounting & Assurance Team.

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