Not-for-Profit Organizations and Accounting For In-Kind Donations
Does your not-for-profit (NFP) organization receive in-kind donations? If so, you’ll want to review how the Accounting Standards Update (ASU) 2020-07 on Topic 958 impacts your reporting requirements.
The Financial Accounting Standards Board (FASB) issued ASU 2020-07 on Topic 958, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, in September 2020. The update addresses concerns about the lack of transparency surrounding revenues generated by in-kind donations. Some concerns include inflating revenue, hiding administrative costs and determining what the price of the in-kind donation would be if it needed to be purchased for operations. In-kind donations can be land, buildings, equipment, food, office space, medical supplies or services, just to name a few.
What has changed with this new update? Prior rules had no specific disclosure requirements for these types of in-kind contributions. Previously, organizations were allowed to group contributed financial and nonfinancial donations together under one line item. Under the new standard, organizations must present contributed nonfinancial assets as a separate line item in the statement of activities. The line item will need to disaggregate the contributed nonfinancial assets recognized by the category that depicts the type of contributed nonfinancial assets.
ASU 2020-07 Disclosure Categories Include:
- Qualitative information about whether the contributed nonfinancial assets were monetized or utilized;
- The policy (if any) the organization uses to determine whether to monetize or utilize the asset;
- A description of donor restrictions placed on the asset, if applicable;
- The principal market or most advantageous market used to arrive at fair value; and
- The valuation technique used to estimate the asset’s fair value.
FASB Added the Following Amendments to Their Master Glossary:
- “Principal Market” is defined as the market with the greatest volume and level of activity for the asset; and
- “Most Advantageous Market” is defined as the market that maximizes the amount that would be received to sell the asset. The most advantageous view would require continuous evaluation of secondary markets to determine whether quoted prices for identical assets are more advantageous.
Key Takeaways and Action Steps for Successful Implementation:
- NFPs should ensure they have adequate reporting systems and processes in place to provide the appropriate disaggregation;
- NFPs should have a policy about how they monetize and utilize in-kind donations; and
- NFPs should have a process for determining donor restricted in-kind donations that would require additional disclosure.
ASU 2020-07 is effective for annual reporting periods beginning after June 15, 2021 (calendar year-end December 31, 2022). Early adoption is allowed, and the standard is to be applied retrospectively.
Upon applying the standard, NFPs must disclose the change in the accounting principle with an explanation, the method used to apply the change, prior period information that has been retrospectively adjusted and the financial statement effects of these changes.
Contributing author: Peggy J. Rowe, CPA, CFE, CBA, is an audit partner at Dannible & McKee, LLP. Peggy has over 32 years of experience overseeing audit, accounting and consulting services, specializing in nonprofit organizations. If you have questions about the financial reporting for your nonprofit organization, contact Peggy at email@example.com.