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New Financial Statement Model By Fran Brown

The New Financial Statement Model and What Nonprofits Need to Know About FASB ASU 2016-14

The nonprofit financial statement model changes are finally here. FASB Accounting Standards Update (ASU) 2016-14 is the most significant update to nonprofit financial reporting standards in 25 years, and it is in effect for fiscal years beginning after December 15, 2017.

The changes are significant and the impact will be substantial for many nonprofits. If you haven’t started planning for these changes, it’s vital to start now. If your organization uses a calendar year-end, your first fiscal year beginning after December 15, 2017 is January 1, 2018.

If you use a fiscal year-end (such as June 30), your first fiscal year-end financial statement using the new reporting standards will be June 30, 2019. Early adoption is permitted.

The new standards are intended to improve the presentation of financial information. Let’s look at some of the key changes.

Net Assets

  • The new standards require nonprofits to report net assets in two categories: net assets with donor restrictions (temporarily and permanently restricted) and net assets without donor restrictions (unrestricted). This replaces the three categories in the current standards: unrestricted, temporarily restricted, and permanently restricted.
  • The day-to-day accounting treatment for net assets and the laws surrounding the use and protection of the assets is unchanged. The only change is to the reporting.
  • Net assets that are for the acquisition or construction of long-lived assets (i.e., property, plant, and equipment) will be required to be released from restrictions when the asset is placed in service.


  • In general, endowment funds can be established by either donors or a governing board and must be reported in the statement of financial position based on the existence or lack of donor-imposed restrictions. Under the new standards, donor-restricted endowment funds will be reported on the statement of financial position within the net assets with donor restrictions.
  • Board-designated endowment funds (endowment funds without donor restrictions) will be reported on the statement of financial position within net assets without donor restrictions.
  • Underwater endowment funds (donor-restricted funds whose current fair market value has fallen below the original gift(s) amount or the amount required to be maintained by the donor or law) will stay within the net assets with restrictions category. Under the current standards, underwater endowments have been shown as offsets to unrestricted net assets.

Expense Reporting

  • Under the current standards, expenses are reported in broad categories such as program, general and administrative, and fundraising. FASB ASU 2016-14 requires disclosure of expenses by function and natural classification.
  • Your organization will also need to disclose the methods used to allocate expenses among program and support functions.

Required Disclosures

  • One of the new disclosures requires qualitative and quantitative information on how your organization will manage its liquidity risk (how you will meet current obligations within one year).
  • Additional changes include:
    • Disclosures around investment return and the related expenses
    • Cash flow reporting options
    • Disclosures around reporting when using an operating measure
  • The option to use the direct method for the statement of cash flows is still optional. Unlike previous standards, if you choose this method you no longer need to provide an indirect reconciliation.

Note that this is Phase I of the standards update. Phase II is expected to address additional items under operating measures and statement of cash flows. FASB has not indicated when Phase II will be completed.

Although these changes will require significant time and effort to implement, the end result will be to make your financial statements more readable and useful for your users.


Fran Brown is Partner and Professional Practice Leader – Attest at CapinCrouse, a national full-service CPA and consulting firm devoted to serving nonprofit organizations. Fran has more than 30 years of experience providing audit and management consulting services to a variety of nonprofit entities, including colleges and universities, churches, and large nonprofit organizations.

There is still time to register for the Outcomes Conference April 17-19 in Dallas, TX. Fran Brown from CapinCrouse will be among the stellar faculty on hand to help you grow professionally as a Christian nonprofit leader. He will help you master the new financial statement model on Wednesday, April 18 at 9:00 am!

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