Keeping up with accounting standards can be challenging for nonprofit organizations, especially when new guidance comes into play. While some updates may feel technical, they directly affect how your organization records transactions, reports activities, and communicates financial health to donors, boards, and regulators. As 2026 approaches, it’s a good time to revisit key FASB requirements and note the updates that will take effect in the coming year.  

Core FASB Guidance Nonprofits Should Remember 

Several standards continue to create questions for nonprofit leaders and finance teams: 

ASC 842 – Lease Accounting

Nonprofits must recognize most leases with terms in excess of 12 months on the statement of financial position, including donated or below-market leases. This requires tracking lease terms, valuing in-kind contributions, and ensuring disclosures are complete. ASC 842 became effective for nonprofits in fiscal years beginning after December 15, 2021.   

ASC 958-720-45 – Expense Classification 

Expenses must be reported by both natural (salaries, rent, supplies) and functional (program, management, fundraising) classifications. This dual reporting provides stakeholders with transparency but can require updates to accounting systems and allocations. We recommend using cost center codes that automatically allocate shared expenses like utilities across program and administrative functions. 

ASC 958-605 – Contributions

• Barriers may include measurable performance-related conditions (e.g., serving a specific number of clients or completing a program), measurable outcomes (e.g., raising matching funds or securing a grant partner), or donor-imposed actions that must occur before funds are released (e.g., incurring specified expenditures or achieving milestones). Only once these barriers are satisfied should the contribution be recorded as revenue.

These standards aren’t new, but they continue to challenge nonprofits as operations grow more complex. 

What’s Coming in 2026 

Several changes are set to impact nonprofits beginning in 2026 and beyond: 

ASU 2025-05 – CECL Practical Expedient 

This update simplifies how nonprofits evaluate post-balance sheet collections when applying the current expected credit losses (CECL) model. Effective for years beginning after 12/15/2025; early adoption allowed.

Evolving Areas 

While not yet finalized, nonprofits should keep an eye on emerging guidance around cryptocurrency donations and environmental, social, and governance (ESG) reporting. These areas are gaining traction and may soon require expanded disclosures. 

Action Steps  

To stay ahead of these requirements: 

• Review your current lease, contribution, and expense policies for compliance. 
• Train staff and boards on reporting requirements to improve understanding and consistency. 
• Confirm you’re ready for ASU 2025-05 (effective 2026) and ASU 2023-08 (effective 2025).
  
  

Nonprofit FASB Readiness Checklist 

Leases (ASC 842) 

• Lease agreements are reviewed and recorded on the statement of financial position, where necessary. 
• Donated and below-market leases are identified and valued. 

Expenses (ASC 958-720-45) 

• Expense allocations reported by both natural and functional classifications. 
• Cost center codes are in place to allocate shared expenses (e.g., utilities). 

Contributions (ASC 958-605) 

• Policies are updated to distinguish conditional vs. unconditional contributions. 
• Fiscal sponsorship arrangements are evaluated for conditional elements. 

Looking Ahead (2026 & Beyond) 

• ASU 2025-05 (CECL): confirm policy elections & disclosures before 2026 year-end close. 
• ASU 2023-08 (Crypto): if you accept or hold crypto, confirm fair value processes, presentation, and new disclosures for 2025 onward. 
• ESG: track stakeholder requests/voluntary frameworks; U.S. regulatory timelines remain unsettled.
  
  

Lutz Can Help Your Nonprofit Move Forward 

FASB guidance can feel technical, but staying current ensures transparency and builds trust with your stakeholders. At Lutz, our nonprofit and accounting experts have the tools to guide you through upcoming changes, streamline compliance, and strengthen your financial reporting. Contact us to learn more.