Proposed Accounting Standards Update:
Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets (“Gifts-in-Kind”)
On February 10, 2020, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) intended to increase transparency around contributed nonfinancial assets (also known as “gifts-in-kind”) received by not-for-profit (NFP) organizations—including transparency on how those assets are used and how they are valued.
Examples of contributed nonfinancial assets include fixed assets such as land, buildings, and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing, or pharmaceuticals; intangible assets; and/or recognized contributed services.
Many not-for-profit organizations—including smaller ones—rely on such contributions to conduct their programs and other mission-related activities.
The proposed ASU would improve financial reporting by providing new presentation and disclosure requirements about contributed nonfinancial assets for NFPs, including additional disclosure requirements for recognized contributed services. The proposed amendments would not change existing recognition and measurement requirements for those assets.
Stakeholders are encouraged to review and provide comments on the proposed ASU by April 10, 2020.
Why Is the FASB Issuing This Proposed ASU?
Subtopic 958-605, Not-for-Profit Entities—Revenue Recognition, specifies requirements for the recognition and initial measurement of contributions and disclosure requirements for contributed services. However, it does not include specific presentation requirements for contributed nonfinancial assets or specific disclosure requirements for contributed nonfinancial assets other than contributed services.
Many not-for-profit organizations—including smaller ones—rely on gifts-in-kind to conduct their programs and other mission-related activities.
Stakeholders raised concerns about an NFP’s reporting of gifts-in-kind, specifically contributed nonfinancial assets. Some stakeholders expressed concerns about the lack of transparency for contributed nonfinancial assets, specifically the amount of contributed nonfinancial assets received and used in an NFP’s programs and other activities. Other stakeholders expressed concerns about the clarity of certain aspects of the valuation guidance in Topic 820, Fair Value Measurement, regarding certain contributed nonfinancial assets.
In response to these concerns, the FASB staff assembled a Working Group consisting of auditors, preparers, regulators, and other NFP watchdogs. Together with the FASB’s Not-for-Profit Advisory Committee and the AICPA’s Not-for-Profit Expert Panel, the Working Group helped the FASB staff identify potential changes to GAAP to address the concerns about an NFP’s reporting of gifts-in-kind, specifically contributed nonfinancial assets.
What Are the Main Provisions in the Proposed ASU and How Would They Improve Existing GAAP?
The amendments in this proposed Update would require that an NFP:
- Present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets
- Contributed nonfinancial assets received disaggregated by category that depicts the type of contributed nonfinancial assets
- For each category of contributed nonfinancial assets received (as identified in (a)):
- Qualitative information about whether the contributed nonfinancial assets were or are intended to be either monetized or utilized during the reporting period and future periods. If utilized, an NFP would disclose a description of the programs or other activities in which those assets were or are intended to be used.
- A description of any donor restrictions associated with the contributed nonfinancial assets.
- The valuation techniques and inputs used to arrive at a fair value measure, including the principal market (or most advantageous market) if significant, in accordance with the requirements in Topic 820.
How Would the Amendments Be Applied and When Would They Be Effective?
The amendments in this proposed Update would be applied on a retrospective basis to the first set of financial statements following the effective date. The effective date will be determined after the Board considers stakeholders’ feedback on the proposed amendments.