Over the past few years, not-for-profits have been subject to numerous changes in accounting standards. ASU 2016-14 Presentation of Financial Statement for Not-for-Profit Entities, ASU 2016-18 Statement of Cash Flows – Restricted Cash, ASU 2018-08 Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made and ASC Topic 606 Revenue Recognition, just to name a few.
While we have a bit of a reprieve for 2020/2021, changes are still coming. ASU 2020-07 issued in September 2020 impacts the way not-for-profits present and disclose contributions of nonfinancial assets, aka gifts-in-kind.
Gifts-in-kind include fixed assets such as land, buildings, and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing, or pharmaceuticals; intangible assets; and recognized contributed services. The Financial Accounting Standards Board (FASB) issued the new standard in an effort to improve transparency in reporting gifts-in-kind.
The new standard requires a not-for-profit to show gifts-in-kind as a separate line item on the statement of activities, apart from contributions of cash or other financial assets. The standard also requires a not-for-profit to disclose the details of reported gifts-in-kind by category that depicts the type of nonfinancial assets.
For each category of gifts-in-kind recognized, the standard requires a not-for-profit to disclose:
- Qualitative information about whether the contributed nonfinancial assets were either monetized (sold) or utilized during the reporting period. If they were utilized, a description of the programs or other activities in which those assets were used is required.
- The not-for-profit’s policy (if they have one) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- 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.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient not-for-profit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
FASB is requiring the standard to be applied retrospectively, so any prior years presented will need to be adjusted to conform with the new standard. The amendments take effect for annual reporting periods beginning after June 15, 2021 (e.g. years ending June 30, 2022 and December 31, 2022). Early adoption is permitted.