- Identify the entities that report under ASC 958 and the ones that do not
- List the financial statements and analyses a not-for-profit presents
- Explain the common reasons a not-for-profit engages an auditor
- Map the audit areas in this track to the financial statement lines they support
Who reports under ASC 958
Topic 958 of the FASB Accounting Standards Codification governs nongovernmental not-for-profit entities (NFPs). ASU 2016-14 describes the population: entities that receive significant contributed resources, operate for a public purpose rather than a profit objective, and have no ownership interests. The examples it gives are charities, foundations, colleges and universities, health care providers, cultural institutions, religious organizations and trade associations. It also says what is outside the group: investor-owned entities and entities that return economic benefits directly and proportionately to owners, members or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives and employee benefit plans.
Governmental entities (a public university, a county hospital) follow GASB standards, not ASC 958. Confirm the reporting framework before you plan anything; a client that calls itself a nonprofit can be a governmental unit.
The statements an NFP presents
A complete set of NFP financial statements has:
- a statement of financial position, with net assets split between net assets without donor restrictions and net assets with donor restrictions
- a statement of activities, showing the change in each class and in total net assets
- a statement of cash flows, using the direct or indirect method
- an analysis of expenses by nature and function, in one location: on the face of the statement of activities, as a separate statement, or in the notes
- notes, including the liquidity and availability disclosure that ASU 2016-14 added
There is no equity section and no earnings per share. The bottom line of the statement of activities is the change in net assets, and the reader cares as much about what the NFP spent on programs as about whether it ran a surplus.
Why NFPs get audited
The audit is rarely optional. Common drivers:
- Federal awards. A nonfederal entity that expends federal awards at or above the single audit threshold (now $1,000,000 for fiscal years beginning on or after October 1, 2024) needs a single audit under 2 CFR 200 Subpart F. The single audit track covers that work.
- State charitable solicitation laws. Many states tie an audit requirement to revenue or contributions for charities registered to solicit there. Check each state where the client registers.
- Grantors, lenders and bond documents that require audited statements as a covenant or grant condition.
- The board. Many boards want an audit for oversight even when nothing else requires one.
The Form 990 asks about this directly. Part XII, line 2b asks whether an independent accountant audited the financial statements, and line 3a asks whether the organization was required to undergo a Uniform Guidance audit because of a federal award. Your report and those answers should agree.
What makes the audit different
Revenue is the first difference. Much of an NFP's inflow is contributions, which have no customer and no invoice. Completeness is hard to test, donor restrictions drive classification, and conditional gifts change timing. Expenses are the second difference: functional allocation is a management estimate that donors and rating agencies read closely. The third is the tax return. The Form 990 is public, it reconciles to your audited numbers on Schedule D, and its governance questions tell you a lot about the control environment.
How this track is built
| Lessons | Area |
|---|---|
| 2 | Net asset classes and donor restrictions |
| 3 to 5 | Contributions, exchange transactions, conditions and gifts in kind |
| 6 and 7 | Functional expenses, joint costs and liquidity |
| 8 and 9 | Endowments and split-interest agreements |
| 10 | Exchange revenue under ASC 606 |
| 11 and 12 | Audit procedures for contributions and NFP audit risks |
| 13 and 14 | Form 990 tie-out, Schedule B and Part VI |
Each lesson ends with a worked example and self-checks. The nonprofit audit requirements guide and the planning memo template are good companions for the first week of a new engagement.
Scoping a new client: Riverbend Literacy Alliance
Riverbend Literacy Alliance has a June 30 year end. For the year ended June 30, 2026 it reports total revenue of $4,200,000: individual contributions $2,100,000, a state literacy grant $900,000, federal pass-through grants $1,050,000 (all expended in the year), and tutoring fees $150,000. It is registered to solicit in three states.
Step 1, framework: Riverbend is a 501(c)(3) corporation with no ownership interests and no government control. It reports under ASC 958.
Step 2, single audit: the fiscal year began July 1, 2025, after October 1, 2024, so the $1,000,000 threshold applies. Federal expenditures of $1,050,000 exceed it, so a single audit is required.
Step 3, state law: you check the solicitation rules in each of the three states and record which ones require an audited report with the registration renewal.
Step 4, Form 990: Riverbend files Form 990. You note that Part XII, lines 2b and 3a should be answered Yes, and that Schedule D Parts XI and XII must reconcile to your audited totals.
Conclusion: the engagement is a financial statement audit plus a single audit, with contributions, grant conditions and functional allocation flagged as the main planning areas.
Self-check
Answer each question before you open the answer.
A state university foundation and a state university both raise money. Which one reports under ASC 958?
Show answer
The foundation, if it is a nongovernmental NFP. The university is a governmental entity and follows GASB standards.
Where can an NFP present its analysis of expenses by nature and function?
Show answer
In one location: on the face of the statement of activities, as a separate statement, or in a schedule in the notes.
Which Form 990 lines tell you whether the organization says it was audited and whether it needed a Uniform Guidance audit?
Show answer
Part XII, line 2b (audited by an independent accountant) and line 3a (required to undergo a Uniform Guidance audit because of a federal award).
Name three features that make NFP revenue harder to audit than a business customer sale.
Show answer
Contributions have no invoice or customer, so completeness is hard to test; donor restrictions drive net asset classification; and conditions change the timing of recognition.
Use it on the file
- GuideNonprofit Audit Requirements: When a Nonprofit Needs an Audit and When a Single Audit Applies
- GuideNonprofit Financial Statements Under ASC 958: Net Assets, Functional Expenses and Liquidity
- TemplateNonprofit Audit Planning Memo (ASC 958 and Single Audit)
- LessonWho needs a single audit: the $1,000,000 threshold and program-specific audits
Sources
- FASB, ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities
- IRS, Form 990 (2025), Return of Organization Exempt From Income Tax
- eCFR, 2 CFR 200.501, Audit requirements
Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error