By Denise Lugo
The FASB on September 17, 2020, issued an accounting standard that will provide clearer financial information about important noncash contributions charities and other not-for-profit organizations receive known as gifts-in-kind (GIKs).
GIKs can play an important role in ensuring a charity functions effectively, and these items vary substantially as they include various goods, services, and time. Transparency about that type of information is critical to donors, and the new rules are drawn to facilitate that outcome, according to the main tenets of the guidance.
“The ASU responds to feedback from not-for-profit stakeholders who identified gifts-in-kind as an area where the reporting could be improved,” FASB Member Susan Cosper said in a statement. “It addresses their concerns 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.”
The standard provides new presentation and disclosure requirements about contributed nonfinancial assets for nonprofits, including additional disclosure rules for recognized contributed services. The amendments will not change the recognition and measurement requirements for those assets.
Specifically, not-for-profits are required to present donated nonfinancial assets separately in the statement of activities from contributions of cash or other financial assets. A nonprofit organization has to disclose more details about the donated nonfinancial asset it received by category in footnotes.
The standard comes at a time of increased scrutiny by state charity officials and legislators over how GIKs are used and reported by charities, some of which were hit with lawsuits several years ago. California state legislators in particular have been concerned about the potential for charities to over value GIKs and use the figures to prop up financial information to appear more efficient than they really are. Other worries include the potential for a charity to hide wasteful use of its resources.
The guidance was issued as Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. It takes effect for annual periods after June 15, 2021, and interim periods within fiscal years after June 15, 2022. Retrospective application is required. Early application is permitted.
Nonprofits Need to Provide Details
The new disclosure rules are drawn to give donors better information without causing nonprofits too much cost to provide the information, a text of the rules explains. Examples of contributed nonfinancial assets donors would glean insight on 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.
A charity has to split out the amount of contributed nonfinancial asset it receives by category and in footnotes to financial statements. For each category, the charity has to disclose the following:
- Qualitative information about whether contributed nonfinancial assets were either monetized or used during the reporting period. If used, a description of the programs or other activities in which those assets were used;
- The nonprofit’s policy (if any) for monetizing rather than using contributed nonfinancial assets;
- A description of any associated donor restrictions;
- 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 measurement if it is a market in which the recipient nonprofit is prohibited by donor restrictions from selling or using the contributed nonfinancial asset.
This article originally appeared in the September 18, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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