Presentation and Disclosures by Not-for-Profit Entities
By Nicole Loux, CPA
On September 17, 2020 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07 on Topic 958, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The FASB ASU requires not-for-profit (NFP) entities to change their financial statement presentation and disclosure for contributed nonfinancial assets, or in-kind contributions. The FASB issued the update in an effort to improve the transparency in reporting in-kind contributions. ASU 2020-07 applies to all NFP that receive contributed nonfinancial assets.
In-kind contributions are contributed nonfinancial asset donations made to NFPs for goods or services the organization would purchase in their normal course of business. In-kind contributions of tangible property include items like operating facility, office furniture and supplies provided to your organization; items donated to be auctioned through your charitable events, items that you use in program activities. Intangible in-kinds contributions include items like royalties, copyrights, patents, specialized services (examples are building services, legal services, etc.).
FASB ASU 2020-07 requires the following items in the NFP financial statements and disclosures:
- Present contributed nonfinancial assets as a separate line item in the statement of activities that is separate from contributions of cash and other financial assets.
- Disaggregation of the amount of contributed nonfinancial assets recognized within the statement of activities by category the depicts the type of contributed nonfinancial assets.
- For each category of contributed nonfinancial assets recognized (types identified in a above):
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized the NFP will disclose a description of the programs or other activities in which those assets were used.
- NFP policy for monetizing rather than utilizing contributed nonfinancial assets.
- Description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- Description of the valuation techniques and inputs used to arrive at the fair value measure, in accordance with the requirements in Topic Accounting Standards Codification (ASC) 820, Fair Value Measurement, at initial recognition.
- The principal market (or most advantage market) used to arrive at the fair value measurement if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset.
How does the provisions of ASU 2020-07 differ from current generally accepted account principles? ASC Subtopic 958-605, Not-For-Profit Entities – Revenue Recognition, specifies the requirements for the recognition and initial measurement of contributions and disclosure requirements for contributed services, however, it does not include specific presentation requirements for contributed nonfinancial assets or specific disclosure requirements for contributed nonfinancial assets other than contributed services. ASU 2020-07 will improve financial reporting by providing new presentation and disclosure about contributed nonfinancial assets for NFPs, including additional disclosure requirements for recognized contributed services. ASU 2020-07 does not change the recognition and measurement requirements for ASC Subtopic 958-605 for those assets.
ASU 2020-07 should be applied on a retrospective basis and is effective for annual periods beginning after June 15, 2021 and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted.
Nicole Loux, CPA | Manager