Contributed Non-Financial Assets: New Presentation and Disclosure Requirements for Not-for-Profit Organizations | Marcum LLP

Concerns have recently been raised about the financial statements of nonprofits and how nonprofits report in-kind donations, particularly contributed non-financial assets. These assets mainly consist of fixed assets (such as land, buildings and equipment); use of capital assets or utilities; materials and supplies; Intangible assets ; services; and unconditional promises to give non-financial assets. Users of nonprofit financial statements have cited a lack of transparency regarding contributed nonfinancial assets, particularly amounts received and used in the organization’s programs and activities. Other concerns related to the clarity of fair value measurements and related sources and the valuation basis of contributed non-financial assets.

Currently, FASB 958-605 requires nonprofit organizations to recognize and measure contributions and publish information about services provided. However, it does not include any specific guidelines for the presentation of such requirements or information.

On February 10, 2020, the FASB Board of Directors issued a Proposed Update to Accounting Standards, Not-for-Profit Entities (Topic 958); Presentation and information provided by non-profit entities for contributed non-financial assets. The Board specifically did not include contributed financial assets within the scope of this amendment, as contributed financial assets (other than cash) are generally liquidated immediately and used in the same manner as cash to fund programs. and other activities of non-profit organizations.

This update doesn’t change the timing and recognition of in-kind donations made, and it shouldn’t be a heavy load for most nonprofits. But organizations that receive substantial nonfinancial assets will need to create (or modify) a tracking and monitoring worksheet for contributed nonfinancial assets. The spreadsheet should include additional information such as the donor’s restricted assets and the respective individual basis for determining fair value.

These guidelines apply only to financial statements of nonprofit organizations, as concerns about a lack of transparency have been raised by nonprofit stakeholders.

Donors, creditors and other users of financial statements will truly benefit from improved contributions to financial reporting, especially those related to contributed non-financial assets.

Accounting under FASB ASC 958-605, Not-for-Profit – Revenue Recognition

Under current guidelines, specific disclosure requirements only apply to services provided. Generally, for a service provided to be recognized in the financial statements, it must either:

  • Create or value non-financial assets, or
  • Requiring individuals (such as accountants or lawyers) to perform special skills or services that would generally have to be purchased if not given.

Provisions of the update of accounting standards

The new guidelines expand disclosure requirements for contributed non-financial assets. Basically, nonprofits will need to do the following:

  1. Present income from contributed non-financial assets on a separate line in the financial statements, i.e. the statement of activities.
  2. Provide disaggregated information (in the notes to the financial statements) on each category and type of non-financial asset contributed. For each category, the nonprofit must also disclose the following:
    1. Qualitative information indicating whether the assets have been monetized or used during the reporting period. If used, the organization should describe the program or activities funded by the assets.
    2. The nonprofit’s policy (if any) regarding monetization, rather than use, of contributed non-financial assets.
    3. A description of any donor-imposed restrictions on contributed non-financial assets.
    4. A description of the valuation techniques and inputs used to arrive at fair value. (This applies on initial recognition of a contributed non-financial asset.)
    5. The main market (or most advantageous market) used to arrive at fair value, if it is a market in which donor restrictions prohibit the nonprofit from selling or using the contributed nonfinancial assets. For example, suppose Charity P receives a donation of medical supplies from a medical device company that limits the use of supplies to three specific countries outside of the United States. Charity P uses US wholesale prices to estimate the fair value of medical supplies. Under the new standard, this fact would be disclosed because Charity P is prohibited from using supplies in the primary market used to estimate fair value.

Organizations are also encouraged to disclose the fair value of contributed services received but not acknowledged, if possible. Organizations can describe the nature and extent of services contributed with non-monetary information, such as numbers and trends in hours provided or results of services provided, or with monetary information, such as the dollar amount of contributions collected by volunteers. It is important to note that organizations must disclose the services provided, whether or not these services are recognized as revenue in the financial statements.

In terms of implementation tips and illustrations, the requirement to present contributed non-financial assets is separate from contributed cash and other financial assets in the statement of operations. The new guidelines provide examples for all three activity statement formats.

Regardless of the format of the statement of activities, the contributions of financial and non-financial assets are now presented on separate lines as illustrated below:

In terms of information to be provided in footnotes, the guidance illustrates the following options.

OPTION A: A table showing the types or categories of non-financial financial assets recognized during the accounting period (note that the total in the table should match the amount declared opposite the statement of activities) and a description of donor restrictions, valuation techniques and inputs for each category or type of non-financial asset contributed. The snippet below provides an example.

OPTION B: A table consisting of disclosures of both type or class of non-financial assets and written disclosures of donor restrictions, valuation techniques and inputs, and use in programs/activities.

Option B seems to be the best disclosure format to use because it is summarized (clearer) and shorter (fewer pages), especially for nonprofits with a long list of contributed nonfinancial assets. donor restrictions and details on use for technical programs and evaluation.

Example of Option A

Example of Option A

Example of option B

Example of option B

When will the changes come into effect?

Amendment to ASU 2020-07 will be effective for annual periods beginning after June 15, 2021 and interim periods during annual periods beginning after June 15, 2022. For example, a nonprofit organization whose fiscal year ends June 30 would need to implement the new presentation and disclosure requirements in its financial statements for the fiscal year ending June 30, 2022. Organizations with calendar year ends would need to implement the changes to fiscal year ending December 31, 2022. Early adoption is permitted. To facilitate comparability of financial information, the FASB Board of Directors has decided that this ASU 2020-07 should be applied retrospectively to all periods presented in the nonprofit organization’s financial statements. The Board does not expect retrospective application to result in significant costs for most not-for-profit organizations, especially since it does not require accounting changes. Nonprofits that present fully comparative financial statements should revamp their prior year information to reflect the new presentation and disclosure guidelines.

FASB Accounting Standards Update (ASU) No. 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Non-Financial Assets

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