FASB redeliberates proposed guidance on the presentation of financial statements of not-for-profit entities

Published on: 18 Dec 2015

At its December 11, 2015, meeting, as part of Phase 1 of its project on the presentation of financial statements of not-for profit entities (NFPs), the FASB discussed certain issues resulting from feedback on its proposed ASU.1 Tentative decisions reached at the meeting are summarized below.

Methods of Presenting Operating Cash Flows

The Board decided not to require the use of the direct method of presenting operating cash flows but instead to continue to permit the use of either the direct method or the indirect method. If an NFP uses the direct method, an indirect reconciliation is no longer required.

The Net Asset Classification Scheme and Related Issues

The Board reaffirmed the following requirements of its proposed ASU: 

  • Net assets must be presented under two classes (at a minimum) on the face of the statement of financial position as “net assets with donor restrictions” and “net assets without donor restrictions.”
  • Disclosure will be required of information about the amounts and purposes of board designations of net assets without donor restrictions. The information should be included in the notes to the financial statements if not provided on the statement of financial position.
  • If an endowment fund is underwater, the aggregate amount by which it is underwater must be presented within net assets with donor restrictions. In addition, the FASB reaffirmed the proposed ASU’s guidance that would expand disclosure requirements for donor endowment funds that are underwater to include the spending policy (if any) from underwater endowment funds and the following amounts for those funds:
  1. The fair value of the underwater endowment funds
  2. The original endowment gift amount or level required by donor stipulations or by law that extends donor restrictions
  3. The aggregate of the amount of the deficiencies of each of the underwater endowment funds ((a) less (b)).
  • NFP entities must use the placed-in-service approach to report expirations of restrictions on assets to be used to acquire or construct long-lived assets because the proposed ASU eliminates the option to release donor imposed restriction over time.

Information Useful in Assessing Liquidity

No decisions were reached on this topic, but the Board clarified its objective for the staff.

Next Steps

The Board will continue to redeliberate feedback received on the proposed ASU in two workstreams (Phase 1 and Phase 2).


1 FASB Proposed Accounting Standards Update, Presentation of Financial Statements of Not-for-Profit Entities.


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