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Non-Profit Organizations

Change is in the Air for Your Not-for-Profit Financial Statements

By February 15, 2016No Comments

FASB officials met for almost two years to discuss changes in reporting requirements for not-for-profit entities. The most important changes that will affect your organization are summarized below.

Net Assets

  • The number of net asset classifications has been reduced from three to two
  • You no longer have to distinguish between temporarily restricted, permanently restricted, or unrestricted net assets

o Instead, your assets will be classified as either with or without donor-imposed restrictions

Statement of Activities

  • Operating measures must be clarified and distinguished from non-operating measures

o Operating measures are defined as revenues and expenses directly related to the mission of the organization that are not subject to donor-imposed restrictions

  • Two additional subtotals are to be shown in changes in net assets without donor restrictions: “operating revenues with donor restrictions” and “internal transfers”
  • Investment income/loss and interest expense are to be reported separately from operations

Liquidity/Cash Flow

  • The direct method of preparing the statement of cash flows is now required
  • The indirect method may still be used only if it is accompanied by a presentation of the direct method
  • The classification of certain transactions has changed

o Purchases of long-lived assets are classified as operating rather than investing

o Payments of interest on borrowings are classified as financing rather than operating

o Receipts of interest and dividends on loans and investments are classified as investing rather than operating

Functional Expenses

  • Operating expenses are now required to be presented by functional class either in a separate schedule or combined on the statement of activities


  • In addition to additional disclosures related to the changes outlined above, there are also proposed changes to investment reporting and underwater endowment disclosures

While a proposed effective date has not yet been determined, the change in requirements for not-for-profit financial statement reporting will significantly affect your organization. The complete list of updates can be found at the following link. If you have any questions or concerns regarding these changes, please do not hesitate to contact our office.

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