Are you ready? In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07 Not-For-Profit Entities (Topic 958): Presentation and Disclosures by Not-For-Profit Entities for Contributed Nonfinancial Assets. Contributed financial assets, better known as gifts-in-kind, will require more transparency in financial statements of not-for-profit organizations about how these types of assets are measured and how they are utilized in programs and other activities.
What are Contributed Nonfinancial Assets?
Nonfinancial assets are simply defined as assets that are not financial assets. The following are common examples of nonfinancial assets:
- Land, buildings, and equipment
- Materials and supplies
- Intangible assets
- Specialized volunteer services
Unconditional promises to give nonfinancial assets such as free use of buildings and facilities over a period of time are also subject to the accounting update.
Main Provisions of the New Guidance
Stakeholders were concerned about the lack of transparency about how certain gifts-in-kind are measured and used by not-for-profit organizations. The FASB addressed these concerns by requiring new presentation and disclosure mandates as follows:
In the statement of activities –
1. Present contributed nonfinancial assets as a separate line item. The following is an example of this new requirement:
In the financial statement footnotes –
2. Disaggregate the amount of contributed nonfinancial assets recognized within the statement of activities by type.
3. For each category of contributed nonfinancial assets identified disclose:
- Qualitative information about whether the contributed nonfinancial assets were either monetized (i.e. selling them) or utilized during the reporting period.
- A policy about monetizing rather than utilizing contributed nonfinancial assets.
- Donor-imposed restrictions associated with the contributed nonfinancial assets.
- Valuation techniques and inputs used to arrive at a fair value measure.
It is important to note the accounting update does not change existing standards for the valuation and recognition of contributed nonfinancial assets. Additionally, ASU 2020-07 does not change the criteria to determine whether to record contributed services.
Implementation Tips and Effective Date
Current guidance does not include specific presentation requirements for contributed nonfinancial assets or specific disclosure requirements other than for contributed services. Not-for-profit organizations should determine their ability to collect the information needed to comply with the new accounting update. Begin by formalizing accounting policies and internal controls over gifts-in-kind. Review the chart of accounts to ascertain if your organization can track nonfinancial asset gifts by category including the utilization and monetization of those gifts. Take a fresh look at your existing gifts-in-kind valuation techniques and make sure you are capturing the information now required for disclosure.
ASU 2020-07 is effective for fiscal years beginning after June 15, 2021, and early adoption is permitted. The guidance must be applied retrospectively to all periods presented. Calendar year not-for-profit organizations presenting comparative financial statements will apply the amendments to 2021 and 2022. If you have any questions about implementing ASU 2020-07, please contact our not-for-profit professionals.
We Can Help
The Elliott Davis Not-for-Profit group can assist you with these and other disclosure requirements. Contact our team to see how we can assist you.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.