The Financial Accounting Standards Board (FASB) has issued an accounting standards update ASU No. 2020-07 (ASU) Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets for nonprofit organizations that receive contributions of nonfinancial assets, commonly referred to as “gifts-in-kind.” While the update is relatively short, it contains changes that could be significant for many nonprofit entities.
Organizations are required to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets.
It also mandates that organizations are required to disaggregate the contributed nonfinancial assets recognized within the statement of activities by category that depicts the type of contributed nonfinancial assets.
For each of the recognized categories of contributed nonfinancial assets, the following must be disclosed:
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, organizations will disclose a description of the programs or other activities in which those 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 measure, in accordance with the requirements in FASB ASC Topic 820, Fair Value Measurement, at initial recognition. For example, you might obtain an appraisal to determine fair value of a property donation, or a professional consultant might use their billing rate to value professional services.
- A description of the market used to arrive at a fair value measurement.
The required disclosures can be presented in either a table or narrative form. A full disclosure illustration is available in ASC 958-605-55-70V.
In current conditions, not-for-profit organizations are looking for ways to increase contributions and are more willing to accept contributions of nonfinancial assets with or without donor-imposed restrictions. With the issuance of ASU 2020-07, not-for-profit organizations will need to be ready to inform stakeholders, including potential donors, of their policies for monetizing rather than using these contributed nonfinancial assets to further support their mission.
This ASU will be effective for annual periods beginning after June 15, 2021, and for interim periods within annual reporting periods beginning after June 15, 2022. The amendments in this ASU should be applied on a retrospective basis, and early adoption of this ASU is permitted. As the ASU must be applied retrospectively, nonprofit organizations should be prepared to provide the required disclosures for fiscal years beginning after June 15, 2020, if they present comparative financial statements.
Organizations must also provide the transition disclosures in the period of adoption, including:
- The nature of, and reason for, the change in accounting principle, including an explanation of the newly adopted accounting principle.
- The method of applying the change.
- A description of the prior-period information that has been retrospectively adjusted.
- The effect of the change on relevant financial statement line items.
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Lila Leno, CPA, MBA | Partner