Understanding and implementing FASB’s new guidance for gifts-in-kind
New guidance Accounting Standards Update 2020-07 - Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets (ASU 2020-07), which is effective for annual periods beginning after June 15, 2021, includes financial statement presentation and disclosure requirements for contributed nonfinancial assets received by not-for-profit entities (NFPs). The ASU provides more transparency about the measurement and use of contributed nonfinancial assets recognized by NFPs. It’s also important to note that this ASU does not change existing recognition or measurement requirements.
Many NFPs receive contributed nonfinancial assets such as fixed assets (i.e., land, buildings, and equipment), the right to use fixed assets or utilities, materials and supplies (e.g., food, clothing, and pharmaceuticals) and intangible assets. While Subtopic 958-605, Not-for-Profit Entities - Revenue Recognition has specified requirements for the initial measurement, recognition, and disclosure requirements for contributed services, it does not include specific presentation or disclosure guidance for contributed nonfinancial assets. ASU 2020-07 provides clarity on how contributed nonfinancial assets should be presented in the statement of activities and what needs to be disclosed.
Presentation on the financial statements
Under the new guidance, a NFP will be required to present contributions of nonfinancial assets as a separate line item on the statement of activities, apart from other types of contributions (such as cash or other financial assets).
ASU 2020-07 require NFPs to disclose a disaggregation of the amount of contributed nonfinancial assets presented on the statement of activities by category. NFPs may use either a table or narrative format (or a combination of both) to disclose the required information. According to the guidance, the following information must be included:
- Qualitative information for each category of contributed nonfinancial assets about whether the nonfinancial asset was monetized or utilized during the reporting period and, if utilized, include a description of what program or activity the assets were used for.
- The organization’s policy about monetizing rather than utilizing contributed nonfinancial assets, if applicable.
- A description of any donor-imposed restrictions on the contributed nonfinancial assets.
- A description of the valuation techniques and inputs used to determine fair value in accordance with Topic 820, Fair Value Measurement at initial recognition.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
ASU 2020-07 is effective for NFPs for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted and the amendments in the update should be applied retrospectively to all periods presented.
NFPs should provide the transition disclosures required by ASC 250-10-50-1 in the period of adoption.
When implementing ASU 2020-07, Organizations should:
- Take an inventory of contributed nonfinancial assets by category and program held by the organization.
- Ensure there is proper supporting documentation to verify the fair value techniques and whether there are any donor restrictions.
- Ensure the development office of the organization has a process in place to track the various types of contributed nonfinancial assets, whether there are any donor restrictions on those contributions, and how the fair value of those contributed nonfinancial assets was determined.
- Reconcile their Finance Department’s records to the Development Department’s records periodically.
- Develop a formal policy for contributed nonfinancial assets that are monetized instead of utilized.
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