Nonprofits often have contributions to the mission of the organization, which could include accounting and legal services, IT, fundraising events, and even volunteering for program or administrative activities within the organization. Recently, the Financial Accounting Standards Board (FASB) published 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 Nonfinancial Assets is more commonly referred to as “gifts in kind.” Gifts in kind can take many forms, including but not limited to:
- financial securities that can be traded on the open market and converted to cash;
- free or discounted use of facilities;
- office furniture, equipment, and supplies;
- computer hardware and software;
- goods and use of property (e.g., vacation rentals) for re-sale; and
- items to be used in auctions or other events.
GAAP requires the fair value of donated services to be recognized in the financial statements if the services meet either of the following criteria: 1) They create or enhance a nonfinancial asset. 2) They require specialized skills, are provided by entities or persons possessing those skills, and would be purchased if they were not donated. This criteria is why general volunteer activity is most often not quantified and recorded in the financial statements.
The objective of (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets is to improve financial statement reporting on the face of the Statement of Activities as well as in the notes to the financial statements. Under these new rules, Organizations will no longer be allowed to group cash and noncash donations together as one line item called “contributions” and instead report all in-kind donations as a separate line item in the Statement of Activities. In addition, management will need to disaggregate the amount of contributed nonfinancial assets recognized within the statement of activities by category that depicts the type of contributed nonfinancial assets. For each category, the Organization 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.
The guidance takes effect for annual periods beginning after June 15, 2021, and interim periods within fiscal years beginning after June 15, 2022 (i.e. fiscal year ending June 30, 2022 or December 31, 2022). The guidance does not need to be applied to immaterial activity, but retrospective application is required and early application is permitted. As Organizations prepare to implement the new guidance management should implement a formal gift acceptance policy that will help the staff know which types of gifts acceptable and which ones are need further evaluation.
Jessica Kober, CPA, CFE
Senior Manager, Audit & Assurance Services