Changes to Gifts-in-Kind Reporting
In September 2020, the Financial Accounting Standards Board (‘FASB’) addressed new disclosures and presentation guidelines for gifts-in-kind with the issuance of Accounting Standard Update (ASU) No. 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.
Gifts-in-kind is a catch-all phrase that includes any non-financial donations to any qualified nonprofit organization. These gifts have financial value, but take the form of supplies, services, intangible assets, and special agreements that provide facility usage, etc. ASU 2020-07 only affects non-financial assets, as financial assets can be easily monetized and are thus more like a cash donation.
The purpose behind ASU 2020-07 is to provide more transparency about how non-financial assets are recognized. A key factor is the extent to which the donation impacts the organization. While it doesn’t change recognition or measurement requirements, ASU 2020-07 furthers accounting disclosures and how donations are presented through generally accepted accounting principles (‘GAAP’).
What it looks like
While nonprofits may develop a custom means (e.g., table, spreadsheet, narrative, or combination) to address the provisions, ASU 2020-07 requires the following:
- Presentation of contributed non-financial assets must be presented on a separate line in the organization’s Statement of Activities.
- The organization must disclose all non-financial assets received by type, including:
- Information on whether the donation was monetized or used – and if so, a note on which programs/activities were impacted - during the appropriate reporting period.
- Any relevant policy about how non-financial donations are evaluated to be monetized or utilized.
- Whether the donor specified any restriction on the use of the asset.
- Description of the process used to determine the fair market value as initially recognized.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient organization is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
While early adoption is allowed, ASU 2020-07 must be implemented retrospectively for all annual periods that began after June 15, 2021 and interim reporting periods within annual periods beginning after June 15, 2022. For annual comparisons, prior year information needs to be presented similarly to the current year.
While many organizations will be in good shape for early adoption, some may need to consider a review and potential overhaul of processes and controls specifically for non-financial assets. As with any contribution, organizations must continue to acknowledge and control any donor restrictions.
FASB seeks to make financial statements more useful and transparent for nonprofit boards, donors, and grantors. Users of financial statements should be able to easily recognize an organization’s reliance on non-financial assets and how they are used. This is particularly useful today, as many organizations depend upon non-financial support to further the mission.
ASU 2020-07 provides an effective reporting framework that will help organizations and potential donors work transparently and cooperatively to best fund the mission.
For more information, please contact Marybeth Olree.