FASB Compliant Accounting: What Nonprofits Need to Know

FASB compliance is a must for nonprofit accounting. Understanding and meeting FASB standards ensures transparency, audit readiness, and donor trust. In this guide, we'll explain what FASB compliance means and how the right software helps.

What Is FASB?

The Financial Accounting Standards Board (FASB) is the organization that sets accounting standards for nonprofits in the United States. FASB standards (specifically ASC 958) govern how nonprofits report their financial position, activities, and cash flows.

Key FASB Requirements for Nonprofits

1. Net Asset Classification

FASB requires nonprofits to classify net assets into two categories:

• With donor restrictions: Funds that donors have restricted for specific purposes or time periods.
• Without donor restrictions: Funds that can be used for any purpose.

This replaced the old three-category system (unrestricted, temporarily restricted, permanently restricted).

2. Statement of Financial Position

Your balance sheet must show assets, liabilities, and net assets—broken down by restriction category.

3. Statement of Activities

Your income statement must show revenues and expenses, with changes in net assets by category.

4. Statement of Functional Expenses

Nonprofits must report expenses by both function (program, management, fundraising) and nature (salaries, rent, supplies). This can be presented as a matrix or in the notes.

5. Liquidity Disclosures

FASB requires nonprofits to disclose information about liquidity and availability of resources. This helps stakeholders understand your financial health.

Why FASB Compliance Matters

1. Audit Readiness

Auditors expect FASB-compliant financials. Non-compliance can lead to qualified opinions or audit findings.

2. Donor and Grantor Trust

Funders want to see that you follow standard accounting practices. Compliance builds confidence.

3. Board Governance

Your board relies on accurate, compliant financials to make informed decisions.

4. Regulatory Requirements

Many states and grantors require FASB-compliant reporting for nonprofits.

Common FASB Compliance Challenges

Challenge	Solution
Net asset classification	Software with built-in fund tracking
Functional expense allocation	Automated allocation tools
Liquidity disclosures	Real-time cash flow reporting
Manual reporting	Automated FASB-compliant statements

How Software Helps with FASB Compliance

1. Automate FASB Reporting

Generate Statement of Financial Position, Statement of Activities, and Statement of Functional Expenses with one click.

2. Track Restricted and Unrestricted Funds

Tag every transaction by net asset class. Ensure accurate classification and reporting.

3. Allocate Functional Expenses

Automatically allocate expenses by function and nature. Produce the required matrix or notes.

4. Stay Audit-Ready

Maintain a clear audit trail and documentation for every transaction.

FASB Compliance Checklist

• Classify net assets as with or without donor restrictions
• Prepare Statement of Financial Position with net asset breakdown
• Prepare Statement of Activities with changes in net assets
• Prepare Statement of Functional Expenses (matrix or notes)
• Disclose liquidity and availability of resources
• Document accounting policies and estimates

Alignmint: Built for Compliance

Alignmint makes FASB compliance simple for nonprofits of all sizes. Automate reporting, track net assets, and stay audit-ready—all in one platform.

Ready to simplify compliance? Join our waitlist