FASB's Preliminary Analysis of the Comment Letters on the Not-for-Profit Financial Statement Exposure Draft 

Published October 01, 2015

On September 11, 2015, the Financial Accounting Standards Board (FASB) presented, to the FASB Not-for-Profit Advisory Council, a summary of the comment letters on the proposed Accounting Standards Update —Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities (proposed ASU). The proposed ASU could bring about significant changes to the not-for-profit reporting model with the goal of making financial statements more relevant, more informative, and better able to meet the needs of financial statement users.

FASB's summary is a preliminary analysis of the 263 comment letters received from preparers, auditors, users, academics, individuals and others. It is important to note that the results of the comment letters reported in the summary are still subject to ongoing FASB deliberations and are not an indication of a final determination on the issue.

A summary of FASB’s preliminary analysis of the comment letters is as follows:

Overall Common Themes

  • Desire to maintain as much consistency as possible between NFPs and For-Profit reporting requirements. 
  • Desire for a proposal that better takes into consideration the differences among different types of NFPs. 
  • Concern regarding the potential cost to implement the proposals, especially for small NFPs.

Combining Temporarily and Permanently Restricted Net Asset

  • Overall support for combining the two classes or net assets.

Underwater Endowment

  • Overall support for classifying underwater endowment funds within net assets with donor restrictions rather than net assets without donor restrictions.
  • Overall support for disclosure of the NFP’s policy on spending from underwater endowment funds together with the aggregated original gift amount that is required to be maintained by donor by law.

Disclosures Useful for Assessing Liquidity

  • Mixed feedback for proposed disclosures of information about liquidity—more support for the qualitative disclosures than the quantitative disclosures.

Reporting of Expenses by Function and Nature 

  • Overall support for all NFPs to report an analysis of operating expenses by both their function and nature in a single location (generally in the notes).  

Investment Income and Expenses, Net 

  • Overall support to report investment income net of external and direct internal investment expense.
  • Overall disagreement that disclosure of all investment expenses is unnecessary, but disclosure of internal salaries and benefits that are netted against investment return should be required.

Intermediate Measures of Operation

  • Mixed feedback for required intermediate measures of operations. Many agree with requiring intermediate measures of operations, but disagree with the intermediate measures proposed.


  • Overall disagreement concerning presentation of all internal transfers on the face.

Gifts of or for Property and Equipment

  • Overall support to require reporting of expirations of donor restrictions on gifts of cash or other assets to be used to acquire or construct long-lived assets using the placed-in-service approach.
  • Overall disagreement to consider as operating revenue/ support unrestricted gifts of long-lived assets when received or restricted gifts for long-lived assets when placed in service, and then present them as a transfer from operating to non-operating activities.

Interest Expense

  • Overall disagreement that interest expense, and fees and related expenses incurred are not directed at carrying out an NFP’s purpose, and thus should not be classified as operating activities.  

Direct Method Statement of Cash Flow

  • Mixed feedback for requiring the direct method of presenting operating cash flows. 
  • Overall mixed feedback on whether to retain the indirect method.

Alignment of Operating Items on Statement of Cash Flows and Statement of Activities

  • Overall disagreement to align line items presented in the statement of cash flows with the proposed operating classification for the statement of activities to increase understandability, even though reporting would be somewhat different from current requirements for business entities.


Additional Resources
AICPA Submits Comment Letter to FASB (AICPA Not-for-Profit Resource Library)
How Will the FASB Not-for-Profit Exposure Draft Affect You (AICPA TV)
FASB Proposes Significant Changes to Not-for-Profit Reporting (Journal of Accountancy)

For the complete comment letters and more information about the project, visit www.fasb.org. The full exposure draft can be downloaded here.


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