By Allan Kose, CPA and David Miller, CPA
The Financial Accounting Standards Board (FASB) recently released a proposed accounting standard update that would affect how not-for-profit organizations account for their nonfinancial assets. Not-for-profit organizations would present contributed nonfinancial assets as a separate line item from contributions of cash or financial assets in their statement of activities.
In introducing the change, the FASB hopes to address concerns around the transparency about the value of contributed nonfinancial assets, including gifts, donations, grants, gifts-in-kind, and donated services. Changes are designed to provide more insight into how an organization uses nonfinancial assets for its programs and other activities.
Impact on Disclosures
The proposed accounting update would also require not-for-profits to include more details about their nonfinancial contributions in their disclosures. Not-for-profits would disclose the contributed nonfinancial assets by general category.
Along with each category, organizations would also include qualitative information about whether they expect to monetize or use the nonfinancial asset during the reporting period (or future reporting periods). If the not-for-profit indicates it would use the nonfinancial asset, it would disclose a description of the activities in which those assets would be used.
Similar to contributions of financial assets, not-for-profits would disclose a description of any donor restrictions surrounding the organization’s use of the nonfinancial assets. Organizations would also disclose the valuation techniques and inputs used to arrive at the nonfinancial asset’s fair value in accordance with ASC Topic 820, Fair Value Measurement.
Interplay with Revenue Recognition
Existing guidance for recognizing revenue for contributed nonfinancial assets in Subtopic 958-605, Not-for-Profit Entities—Revenue Recognition would not be affected by the proposed change. This provision would merely add the additional presentation and disclosure requirements.
Not-for-profit organizations can submit their feedback on the proposed changes to the FASB by April 10, 2020. Some questions the FASB would like to address include whether:
- The amendments are operable, and if not, why
- The scope of the presentation and disclosure requirements should apply to all nonfinancial assets or whether some should be excluded
- The amendments should also apply to for-profit business entities that receive contributions of nonfinancial assets
- Disclosure requirements should be required for each category of contributed nonfinancial assets or to the collective contributed nonfinancial assets
- Retroactive application would be a useful transition method
- Early adoption should be permitted
- Additional guidance is needed on the valuation of contribution nonfinancial assets
Stay Tuned for More
Our team will monitor the conversations around the proposed accounting standards change and keep you up-to-date on if, or when, the accounting standards will be finalized.
Dave Miller is a Managing Director in the Phoenix office. He can be reached at 602-264-6835 or firstname.lastname@example.org.
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