By Stephanie Collins, CPA, Business Assurance & Advisory Services Manager
Addressing common errors in nonprofit accounting application
Keiter hosted its 2024 Not-for-Profit Seminar at the firm’s office in Glen Allen, Virginia, led by professionals in our not-for-profit group, Richard Lewis, Courtney Corallo, and Mary Margaret Sword. The event allowed attendees to earn continuing professional education (CPE) credit while gaining insight and clarity about the nonprofit accounting rules that our team is most frequently asked about. Attendees included numerous Richmond not-for-profit organizations.
Refresher on nonprofit revenue recognition
To start, Richard Lewis, Business Assurance & Advisory Services Partner, provided a refresher on revenue recognition for not-for-profit entities, including key points associated with FASB Codification 606 (Revenue from Contracts with Customers) and ASC 958-605 (Not-for-Profit Entities Revenue Recognition). The discussion revolved around the difference between exchange and non-exchange transactions, which hinges on who receives the benefit for payments received, and how to identify conditions that may be imposed on certain contributions to ensure proper recognition. Examples of non-reciprocal, or nonexchange, transactions include:
- Gifts and pledges
- Certain research and other grants
- Portion of membership dues
- Portion of special event revenues
- Payments where no benefit is received in return
When assessing contributions for the existence of any donor-imposed conditions, entities must consider whether there is a right to return/release associated with the gift AND a barrier to recognition within the agreement. A barrier may include the following:
- Measurable performance-related or other measurable barrier (i.e. specific levels of service or specific outcomes are required)
- Limited discretion on the conduct of an activity
- Must be related to the purpose of the agreement (excludes trivial or administrative stipulations)
The following flowchart from ASC 958 was used to aid in the review of several examples walking through appropriate revenue recognition:
Recognizing sponsorship income for nonprofit events
The Keiter Not-for-Profit team also responded to questions surrounding the recognition of sponsorship income for special events, a common topic for not-for-profit entities. Specifically, Richard emphasized that for sponsorship income received for future planned events, in many cases these amounts should be recognized as unrestricted contributions at the time the funds are pledged or received, instead of deferring recognition until the event takes place, barring any specific conditions or restrictions that may be present in the sponsorship agreements.
A recording of this session is now available.
*CPE is not available for the recorded seminar.
For further insight on accounting for these types of events, please refer to the following related blog posts:
- Accounting and Presentation Issues for Fundraising and Special Events
- Clarifying the Scope and Guidance for Contributions Received and Made
- Not-for-Profit Fundraising Event Reporting – IRS Checklist
Interested in attending future nonprofit seminars or webinars? Subscribe to receive CPE email invitations.
About the Author
Stephanie Collins, CPA, Business Assurance & Advisory Services Manager
Stephanie joined the Business Assurance and Advisory Services group in 2021. Stephanie has experience with auditing procedures, financial reporting, and business process reviews, and evaluation of internal control. Stephanie is a member of the Not-For-Profit Industry team.
Prior to joining the firm, Stephanie worked for public accounting firms in the Washington DC area serving primarily non-profit organizations. She also gained internal accounting experience at a large public company, working with accounting systems, month-end close, and implementation of new accounting guidance.
More Insights from Stephanie CollinsThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
