Nonprofit accounting rules can make finances look stronger than they are, FASB advisers say

Nonprofit accounting rules can make charities, colleges and hospitals look richer than they really are, advisers to U.S. accounting rule maker FASB said on March 19, 2026.

Members of the Financial Accounting Standards Board's (FASB) Not-for-Profit Advisory Committee warned that current financial reports can paint an overly rosy picture by blending day-to-day operating results with restricted donations, investment gains and certain pension-related changes.

The upshot: donors, lenders and other outsiders may think an organization has more financial breathing room than it actually does.

"There's this perception of wealth in our financial statements," New York University controller Kerri Tricarico said at the meeting. She said many readers zero in on the bottom-line change in net assets, even though that figure can include money that isn't really available to pay everyday bills.

The discussion revived a familiar fight over whether nonprofits should be forced to show a clearer, more standardized measure of operating performance. Right now, they can choose to present that number, but they don't have to, and those that do often calculate it in different ways.

The issue matters most for banks, bond investors and ratings firms trying to figure out whether a nonprofit can actually support its core operations. Capital One's Diane Manning said lenders often have to strip out one-time gains, investment returns and other nonrecurring items just to get a realistic view of an organization's finances.

S&P Global Ratings managing director Robert Dobbins said users are mainly looking for recurring income and unrestricted resources that can be used for general obligations, including debt payments. But that is often hard to spot from the face of nonprofit financial statements, committee members said.

Restricted gifts can inflate results

One major source of confusion is donor-restricted money. A nonprofit might raise funds for a new building, for example, and later release that money into its results once the asset goes into service. That can make the current year look stronger, even though the cost of the building is spread out over time through depreciation.

The panel also said existing liquidity disclosures may not be doing enough to clear things up. FASB overhauled nonprofit reporting rules in 2016 to require more detail on what financial assets are available within a year. But committee members said those disclosures are often inconsistent, buried in footnotes or written so broadly that they are not very helpful.