On September 17th, 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 nonprofits to change their financial statement presentation and disclosure of contributed nonfinancial assets, or gifts-in-kind. The FASB issued the update in an effort to improve transparency in reporting nonprofit gifts-in-kind.
What are gifts-in-kind?
Gifts-in-kind are contributed nonfinancial assets donations made to eligible nonprofits for goods or services the organization would purchase in the normal course of business. Gifts-in-kind of tangible property include items like operating facilities, utilities, office furniture, and supplies provided to your organization; items donated to your organization to be auctioned through your charitable events; and items used in program activities, such as medical supplies, building supplies, appliances, and fixtures. Intangible gifts-in-kind include items like copyrights, patents, and royalties; specialized volunteer services, such as those from nurses for medical organizations or project managers and builders for construction projects; and expertise, such as accounting, legal, and consulting services.
What does the FASB ASU change?
According to FASB Board Member, Sue Cosper, the ASU addresses the concerns of nonprofit stakeholders “by requiring more prominent presentation of contributed nonfinancial assets and enhanced disclosures about the valuation of those contributions and their use in programs and other activities, including any donor-imposed restrictions on such use.”
Under the new standard’s requirements, gifts-in-kind are to be presented as a separate line item, instead of remaining grouped among contributions of cash or other financial assets, on your statement of activities. Additionally, gifts-in-kind are to be disaggregated into categories based on the type of gift received, with the following disclosures made for each category:
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, an NFP will disclose a description of the programs or other activities in which those assets were used.
- The NFP’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 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 NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
When does the FASB ASU take effect?
The FASB ASU requires the new standard to be applied retrospectively, with amendments taking effect for annual reporting periods beginning after June 15, 2021, and interim periods within annual reporting periods beginning after June 15, 2022. The ASU does allow for early adoption.
ARB’s Nonprofit Services Group helps nonprofits stay on the leading edge at any stage of financial growth. We provide resources, legislative updates, best practices, and services tailored to your industry and organization’s needs. Contact us to discuss the new standard, as well as your other tax, accounting, and consulting needs.
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by Alyssa Hemingway, CPA, CGMA