Nonprofit Accounting Basics

Preparing for ASU 2016-4: A Checklist and Glossary

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Jul 03, 2018

Kerri Padgett

Your Part-Time Controller

Preparing for ASU 2016-4

In August 2016, FASB issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. This new standard presents a number of areas that nonprofits need to consider for implemnetation. Below is a handy checklist of items needing your attention, and a glossary of terms. 

Review or create policies for: 

Cost allocation methodologies

  • How are costs allocated among program and support functions?

  • Which expenses are based on actual costs and which are allocated? 
  • How are salaries of supporting staff allocated? 

Liquidity management

  • What level of financial assets does your organization strive to maintain for daily 
  • What is the policy for how cash in excess of daily requirements is handled? 

  • What resources are available for unanticipated needs? 

Board-designated funds (aka “quasi-endowment”) spending

  • Does your organization have a policy for the commitment of board-designated funds? 
  • Does the board periodically review a report of disbursements? 

Endowment spending (specifically, in regard to underwater endowments)

  • What is your board’s interpretation of its ability to allow spending from donor-restricted 
endowment funds if amounts fall below original gift amounts? 
  • How are appropriation amounts determined? 

  • Has your organization followed its own endowment spending policy? 

Approach for reporting expirations on gifts of capital assets

  • Does your organization use the placed-in-service approach?

  • If not, your organization will have to adopt it – talk to your auditors 



Prepare schedules and drafts for the new footnote disclosures (as applicable) 

  • Expense analysis with disclosure of cost allocation methods

  • Qualitative and quantitative information on liquidity and cash availability

  • Board-designated net assets 

  • Composition of net assets with donor restrictions
  • Underwater endowment funds

  • Operating measures 

With auditors, decide whether to present comparative statements in the year of adoption 

Financial report changes: 

  • Revise report columns to reflect new net asset classes 

  • Consider whether it would be helpful to prepare a “classified” Statement of Financial Position 


An ASU 2016-4 Glossary

FASB – Financial Accounting Standards Board – the independent organization that establishes nongovernmental financial and accounting standards in the U.S. 

GAAP – Generally Accepted Accounting Principles
ASC – Accounting Standards Codification – compilation of GAAP for 

nongovernmental entities
ASU – Accounting Standards Update – an amendment to the ASC. ASU 2016-14 is 

titled “Presentation of Financial Statements of Not-for-Profit Organizations.” 

SOFP – Statement of Financial Position, also known as the Balance Sheet 

SOA – Statement of Activities, also known as the Income Statement 

Net Assets without donor restrictions - net assets available for use in general operations and not subject to donor restrictions 

Net Assets with donor restrictions - net assets subject to donor-imposed restrictions. Donor-imposed restrictions may be temporary (e.g. purpose or time- restricted) or permanent in nature. 

Endowment – an established fund of cash, securities, or other assets to provide income for the maintenance of a not-for-profit. The use of the assets of the fund may be with or without donor restrictions. 

Board designated net assets – net assets without donor restrictions subject to self-imposed limits by actions of an entity’s governing board. Endowment funds created to invest these funds are sometimes called “quasi-endowments.” 

Underwater endowment – a donor-restricted endowment fund for which the fair value of the fund at the reporting date is less than either the original gift amount or the amount required to be maintained by the donor or by law that extends donor restrictions