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NFP Reporting Exposure Draft, Explained: Statement of Cash Flows

Posted 12:00 PM by

NFP Presentation Alternatives

The third installment in our series, NFP Reporting Exposure Draft, Explained, focuses on changes being considered related to the statement of cash flows for not-for-profit (NFP) organizations.

As a reminder, all of the proposed requirements presented in the Exposure Draft are tentative until a final Accounting Standards Update is issued.

Summary of Current Guidance

Within the Financial Accounting Standards Board (FASB) Codification, specific guidance related to the statement of cash flows for NFPs is limited to unique items presented only in NFP financial statements, such as donated financial assets, donor-imposed restrictions limiting the use of cash, agency transactions and collections. Therefore, the guidance used by NFPs is generally the same as most other entities.

While a direct method statement of cash flows is considered the preferred method in the current guidance, many NFPs elect to use the indirect method alternative for reporting operating cash flows. Under the indirect method, the change in net assets is reconciled to net cash flows provided by operations, primarily by presenting changes in current assets and current liabilities.

The direct method presents actual cash flows to and from major sources and uses, such as cash flows from donors and cash paid to suppliers. NFPs that elect to use the direct-method approach are still required to present a reconciliation of the change in net assets to net cash flows provided by operating activities (the indirect method) separately.

Some users believe the statement of cash flows, particularly operating cash flows, provides valuable information. Other users find this statement confusing, particularly for NFPs whose concept of “cash flows from operations” does not translate well from the general guidance because of the NFPs’ unique characteristics. The FASB’s proposed guidance is intended to address this confusion and provide a statement that is more user-friendly.

Summary of Proposed Guidance

The provisions in the Exposure Draft would require net operating cash flows to be reported using the direct method, eliminating the indirect method as an alternative. The Exposure Draft also eliminates the requirement to present the reconciliation of the change in net assets to net cash flows provided by operating activities separately; however, a NFP may continue to also provide this schedule.

Certain items would also be classified differently between operating, investing and financing. These changes are intended to be consistent with the proposed changes related to the classification of certain activities on the statement of activities as operating. Items would be reported as net cash flows from operating activities if the “resource inflows and outflows are from or directed at carrying out an NFP’s purpose for existence.”

The following chart summaries the proposed changes in classification:

 Current GuidanceProposed Guidance
Purchases of long-lived assetsInvestingOperating
Contributions restricted to acquire long-lived assetsInvestingOperating
Sales of long-lived assetsInvestingOperating
Payments of interestOperatingFinancing
Receipt of interest and dividends other than those related to programmatic investments or loansOperatingInvesting


The FASB believes the proposed classifications would increase understandability and help communicate financial performance.

If a NFP and business entity present consolidated financial statements, proper presentation and classification would be based on which entity is considered the parent entity.

About the Author
Amanda Horvath is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group. Amanda provides a wide variety of services, including financial statement audits, reviews and consulting projects involving compliance, and internal control issues. Connect with her on LinkedIn.

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