Date of Completion

Spring 4-27-2021

Thesis Advisor(s)

Alina Lerman

Honors Major





In 2011, FASB added a project to its agenda to improve financial statement reporting for not-for-profit (NFP) entities. They issued a proposal in 2015 that would require all NFPs to use the direct method to report operating cash flows on the statement of cash flows. This proposal received a wide range of feedback from NFPs via comment letters. In response to this feedback, FASB altered the final update, ASU 2016-14, to continue allowing the indirect method. However, they encouraged use of the direct method by removing the indirect method reconciliation requirement for NFPs. This study examines the responses of 129 NFPs that submitted comment letters to FASB about the proposed standard. I observe that there was widespread disagreement for the direct method requirement. I also examine the audited financial statements of 86 NFP respondents from the years directly before and after adopting ASU 2016-14. I observe which cash flow methodologies are used as well as five financial statement characteristics that may have influenced an NFP’s stance on the proposed direct method requirement. I find that only three NFPs from the sample switched cash flow methodologies after adopting ASU 2016-14. I also find that of the four NFP segments in my sample, Education is the only segment for which a significant relationship exists for agreement with the direct method requirement. In addition, a significant relationship exists between agreement and NFPs that had positive operating cash flows and negative change in net assets in the year before adoption.

Included in

Accounting Commons