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Update on FASB’s Exposure Draft on Not-for-Profit Financial Statements

Feb 11, 2016

The Financial Accounting Standards Board (“FASB”) met in October 2015 to discuss the status of the NFP financial statements Exposure Draft. At that time, the Board decided to divide the issues addressed in the Exposure Draft into two phases. 

Phase I of FASB’s Redeliberation Plan includes issuing a final Accounting Standards Update (“ASU”) by June 2016, although its effective date is TBD. It consists of 5 areas of focus and changes planned as a result of feedback received on the Exposure Draft. 

Phase II of FASB’s Redeliberation Plan does not have an ASU as its next step. Phase II engendered some controversy and concern in the marketplace and warrants further research, and may or may not get taken up for discussion by the Board once Phase I is complete. 

Phase I  

Net Asset Classes: 

  • Net assets will be classified as either “assets without donor restrictions” or “assets with donor restrictions” (similar to the exposure draft).
  • Board designated net assets will have enhanced disclosure requirements.
  • Underwater funds will be considered a part of restricted funds, not unrestricted funds, and will have enhanced disclosure requirements.
  • Capital restrictions (if any) will need to be disclosed. The election to release from restriction over time will no longer be allowed; rather, the placed in service method must be used.  

Expenses/Investment Return: 

  • Expenses categorized by both nature and function will be required.
  • Investment return will be required to be presented net of investment expenses.  

Operating Measure: 

  • Enhanced disclosures will be required for organizations that have an operating measure. 


  • Both quantitative and qualitative disclosures about liquidity will be required.  

Statement of Cash Flows: 

  • Option of presenting the indirect or direct cash flow method will continue to be permitted.  

Phase II  

Operating Measure (other areas not addressed): 

  • Should there be an intermediate measure?
  • What would be considered parts of this and how would it be defined?  

Statement of Cash Flows: 

  • Realignment of items on the statement in coordination with implementation of an operating measure.  

The FASB met February 3 and continue to move ahead with plans to issue the ASU, although further discussions are being held on liquidity and the disclosure of expenses by nature and function. As next steps develop, we will keep you updated!


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