By Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager and Preston A. Jones, CPA, Business Assurance & Advisory Services Manager | Not-for-Profit Team
New Accounting Standards Update (ASU 2020-07) Aims to Increase Transparency for Gifts in Kind
In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07: Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. This ASU aims to increase transparency of contributed nonfinancial assets, commonly known as gifts in kind, through enhancements to presentation and disclosures.
New ASU 2020-07 Disclosure Requirements for Nonprofits
With the new ASU, organizations receiving contributions of nonfinancial assets are now required to present such contributions as a separate line item on the statement of activities. Previously these were allowed to be included in the contributions line item. This ASU also adds additional disclosure requirements for these gifts. The previous disclosure requirements were less detailed and primarily related only to contributed services. The new, more detailed requirements are for contributions of all nonfinancial assets, including both goods and services. Under the new guidance, organizations must disclose in their financial statements:
a.) A disaggregation of the total amount of contributed nonfinancial assets recognized within the statement of activities by category
b.) For each such category disaggregated by Part (a):
- Qualitative information about whether the contributed nonfinancial assets were either “monetized” (sold or held for sale) or “utilized” (used) during the reporting period. If utilized, the organization is required to disclose a description of the programs or activities in which the contributed assets were used.
- The organization’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- A description of the valuation techniques and inputs used to arrive at a fair value measurement, in accordance with Topic 820, Fair Value Measurement.
- The principal market used to arrive at a fair value measurement if it is a market in which the recipient organization is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset.
While the new requirements seem onerous at the outset, many of them bring disclosures for contributed nonfinancial assets in line with other disclosures that are required for contributions of financial assets. It will also provide additional insight to readers of the financial statements as to how fair value for contributed nonfinancial assets is measured.
The underlying accounting for contributions of nonfinancial assets remains unchanged. The FASB does not intend for the adoption of this new standard to be a costly one – indeed, an NFP already must consider these factors upon receipt of gifts-in-kind. ASU 2020-07 only serves to add these considerations into the entity’s financial statements.
New ASU Due Dates for NonProfits
The amendments in this update are effective for annual financial statements issued for fiscal years beginning after June 15, 2021, and for interim periods with fiscal years beginning after June 15, 2022, with early adoption permitted. The amendments should be applied on a retrospective basis.
About the Authors
The 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.