March 12-13, 2018

The FASB Not-for-Profit Advisory Committee (NAC) held its regular semiannual meeting on March 12 and 13, 2018. Topics discussed included:

Revenue Recognition of Grants and Contracts by Not-for-Profits (NFPs)—FASB staff provided a brief overview of the main provisions in the proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, and discussed feedback received from comment letter respondents.  The staff also updated NAC members on the decisions made by the Board in redeliberations to date and solicited their input on three matters:
  • Additional clarifications and refinements that could provide practical guidance to help organizations implement the final amendments when using judgment to determine whether a recipient’s entitlement to a transfer of assets is contingent upon the completion of a stipulation or, rather, if the stipulation does not affect entitlement to the transferred assets and merely serves as a guideline for the general activity being conducted
  • Examples, other than qualifying expenses, that could be used to describe the revised indicator about limited discretion by a recipient over the conduct of an activity
  • Whether the NAC agrees with the Board’s decision that the simultaneous release accounting option for restricted contributions could be elected for conditional restricted contributions separately from unconditional restricted contributions.
On the first matter, the NAC members stressed that it is important to focus on the wording in the final amendments, and that the final amendments should emphasize the fact that a barrier is only present, and a contribution can only be conditional, if a donor’s/grantor’s stipulation hinders entitlement to assets.  One NAC member suggested providing an example involving a grant agreement that explicitly states that the metrics in the agreement are intended as guidelines, which would emphasize that the contribution is not conditional because the metrics are only guidelines, rather than requirements.  Some NAC members emphasized that rather than addressing a full range of possible scenarios an NFP may incur in the examples, it is important to focus on examples that are clear-cut and can be applied to a wide range of NFPs.

On the second matter, NAC members’ suggestions included agreements with stipulations that prevent entitlement to the funding unless the recipient hires identified key personnel, works with identified specific partners, performs the work in a specified location, or performs the work in a specified manner (for example, under a specified protocol).

On the last matter, all NAC members supported the Board’s decision.  A NAC member stated that from a conceptual perspective, when an NFP meets a condition and a restriction simultaneously, it would be difficult for a user of the financial statements to understand how a contribution became restricted in the first place.  This is especially true with most federal grants, which are likely to be considered conditional contributions (nonexchanges) rather than exchanges under the new guidance, and where this release from restrictions has not been reported in the past.

Tax Cuts and Jobs Act—FASB staff provided an update on the financial reporting issues that have resulted from the Tax Cuts and Jobs Act.  Noteworthy for NFPs is a FASB Staff Question & Answer document that states that the FASB would not object to private companies and NFPs electing to apply the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 118.  SAB 118 describes the approach companies may take if they determine that necessary information is not available to evaluate, compute, and prepare accounting entries to recognize the effect of the Tax Cuts and Jobs Act by the time the financial statements are required to be filed. Also discussed were FASB agenda decisions and other overarching issues related to the Act.

Implementation Issues—Also discussed were implementation issues related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), No. 2016-02, Leases (Topic 842), No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for Profit Entities, and No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

Other—Other issues discussed included: