Changes to Nonprofit Reporting of Gifts-In-Kind
In September of 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, which requires new disclosures and presentation for contributed nonfinancial assets, or more commonly known as gifts-in-kind. Below, we unpack these amendments to ASC 958-605 and its overall impact on nonprofit organizations.
What Nonprofits Are Affected by This Accounting Standards Update?
These amendments apply to any nonprofit that receives contributed nonfinancial assets. Examples of commonly contributed nonfinancial assets include materials, supplies, food, clothing, services, intangible assets, utilities or use of facilities, and fixed assets (such as land, buildings, and equipment).
Why Is the FASB Issuing This Accounting Standards Update?
The FASB issued ASU 2020-07 to help address concerns raised about the lack of transparency around the measurement of contributed nonfinancial assets recognized by nonprofits, including how much was used to support a nonprofit’s programs and activities. Through enhanced presentation and disclosures, this improves generally accepted accounting principles (GAAP) and increases transparency around contributed nonfinancial assets. This update doesn’t, however, change the recognition and measurement requirements related contributed nonfinancial assets.
Additionally, the FASB decided not to include contributed financial assets within the scope of these amendments because they are typically liquidated (monetized) immediately and used in a similar manner as cash – funding the nonprofit’s programs and other activities. Enhanced presentation and disclosures of contributed financial assets were found to be unnecessary and less relevant to increasing the transparency of contributions.
What Are the Main Provisions and Requirements?
Nonprofits, using either a table or narrative format (or combination of both), is required under these amendments to:
1. Present contributed nonfinancial assets as a separate line item in the Statement of Activities, separate from contributions of cash and other financial assets.
2. Disclose the amount of contributed nonfinancial assets received, disaggregated by category, that depicts the type of contributed nonfinancial assets, as well as the additional information for each category of contributed nonfinancial assets received:
- Qualitative information about whether the contributed nonfinancial assets were monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were used
- The nonprofits policy (if any) about monetizing rather than utilizing contributed nonfinancial assets
- A description of any donor-imposed restrictions
- A description of the valuation techniques and inputs used to arrive at fair value at initial recognition
- The principal or most advantageous market used to arrive at a fair value measure if it is a market in which the recipient nonprofit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset
When Is This Accounting Standards Update Effective?
These amendments should be applied on a retrospective basis and are effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted. Keep in mind, if you are presenting comparative financial statements you also need to disclose this information for the prior comparative year, so it is important that you are properly tracking at the beginning of that fiscal year.
Key Take-Aways for Nonprofits:
For many, the information needed for adoption may already be available making these amendments an easy adoption. However, for some nonprofits, this may require an additional review of processes and controls surrounding contributed nonfinancial assets. Monitoring and tracking the disaggregated information as well as any donor-imposed restrictions is important. Additionally, policies may need to be created or reviewed as well as financial systems and related chart of accounts updated to accurately capture this activity.
Broader Impact for Nonprofits:
Overall, these amendments provide governing bodies, donors, grantors, and other users of the nonprofit’s financial statements with more useful information. Users should clearly see the nonprofit’s reliance on contributed nonfinancial assets, understand how they are used, and how they help the nonprofit serve its mission.
The increased transparency can help management and those charged with governance better prioritize and utilize contributed nonfinancial asset opportunities. This may even foster nontraditional conversations between nonprofits and their service providers and donors. Partnering with a nonprofit doesn’t mean just providing monetary support, it can mean providing other assets and service that help the nonprofit effectively serve its mission. These amendments showcase that additional support and cooperation.
Lastly, management and those charged with governance may find value in carving these contributed nonfinancial assets out from a budgetary or fundraising perspective to foster more awareness and passion around these types of giving. If nonprofits have been more focused on contributed financial assets (monetary giving), these amendments may help foster an additional revenue stream. Increasing contributed nonfinancial assets can result in cost savings and allow nonprofits to use resources to fund other programs and activities, capital improvements, compensation and benefits, staff increases, and operating reserves.
How We Can Help:
CLA’s nonprofit professionals are here to help you. Through collaboration, we can provide the guidance you need to have a smooth and successful adoption of this standard.
Additionally, please feel free to sign up for our upcoming Audit and Tax Updates for Nonprofits webinar to learn more about this standard and much more.
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