NEED TO KNOW: THE NOT-FOR-PROFIT Financial Reporting …


The Financial Accounting  Standards Board (FASB ) has issued a standard intended to simplify and improve how a not-for-profit organization classifies its net assets as well as the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows.

The standard will improve how not-for-profits communicate their financial performance and condition to their stakeholders, while also reducing certain costs and complexities in preparing financial statements.

Not-for-profit organizations that will be affected include charities, foundations, colleges and universities, health care providers, religious organizations, trade associations, and cultural institutions, among others.

The current not-for-profit financial reporting model has held up well for over 20 years since the issuance of Statement of Financial Accounting Standards No. 117,

Financial Statements of Not-for-Profit Organizations

, in 1993. However, stakeholders voiced concerns about:

  • Complexities in the use of the required three classes of net assets
  • Deficiencies in the transparency and utility of information in assessing an organization’s liquidity
  • Inconsistencies in the type of information provided about expenses and investment return, and
  • Misunderstandings about and the limited usefulness of the statement of cash flows, particularly with regards to the reporting of operating cash flows.

Based on these concerns, the FASB’s Not-for-Profit Advisory Committe and other stakeholders suggested that an update would be beneficial.


By simplifying the face of the financial statements and enhancing the disclosures in the notes, not-for-profits will provide more relevant information about their resources and the changes in those resources.

This will be helpful to users, such as donors, grantors, creditors, and others, in assessing a not-for-profit’s:

  • Availability of resources to meet cash needs for general expenditures
  • Liquidity and financial flexibility
  • Financial performance
  • Service efforts and ability to continue providing services
  • Execution of its stewardship responsibilities and other aspects of its management’s performance.

The amendments in the standard are effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Application to interim financial statements is permitted but not required in the initial year of application. Early application of the amendments in this Update is permitted.

This standard is the first phase of the FASB’s project to improve financial statements for not-for-profit organizations. The second phase of the project is expected to address issues such as:

  • The requirement and/or definition of a measure of operations
  • The realignment of certain line items in the statement of cash flows to better match a required measure of operations
  • Whether or not segment reporting is a viable alternative to an analysis of expenses by nature and function for business-oriented health care not-for-profits.

More information on the forthcoming standard can be found on the FASB website.