FASB Proposes Changes to Not-for-profit Grant and Contribution Accounting
The Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standard Update (ASU) intended to clarify and improve the scope and the accounting guidance for contributions received and made, primarily by not-for-profits. Stakeholders are asked to review and provide comment on the proposed ASU by November 1, 2017.
“Stakeholders indicated that there is difficulty and diversity in practice among not-for-profits with characterizing grants as exchanges or contributions, and in distinguishing between conditional and unconditional contributions” said FASB Chairman Russell G. Golden. “The proposed ASU provides not-for-profits with a more robust framework to evaluate and determine if a transaction should be accounted for as a contribution or an exchange.
“This will help organizations more consistently apply the guidance, and would make the accounting for contributions more operable,” added Golden.
The proposed ASU helps organizations decide if transactions should be accounted for as a contribution or an exchange. Organizations would accomplish this by using clarifying guidance to evaluate whether a resource provider is receiving value in return for the resources transferred.
The proposed ASU also helps organizations evaluate such arrangements by using an improved framework to determine whether a contribution is conditional or unconditional, and better distinguish a donor-imposed condition from a donor-imposed restriction.
Accounting for contributions is an issue primarily for not-for-profit organizations because contributions are a significant source of revenue. However, the amendments in this proposed ASU would apply to all organizations that receive or make contributions of cash and other assets, including business enterprises.
The proposed amendments would not apply to transfers of assets from the government to businesses. The guidance would apply to both a recipient of contributions received and a resource provider of contributions made.
The proposed standard follows the same effective dates as the Revenue Recognition standard:
- A public company or a not-for-profit organization that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market would apply the new standard to annual reporting periods beginning after December 15, 2017, including interim periods within that annual period.
- Other organizations would apply the standard to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
Early adoption of the amendments in this proposed ASU would be permitted irrespective of the early adoption of the amendments in the Revenue Recognition standard.
More details can be found within the proposed ASU and FASB in Focus, which are available at www.fasb.org. The FASB also will host a webcast in the coming months on the proposed ASU.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.