The Financial Accounting Standards Board (FASB) issued Accounting Standards Update® (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, in September 2020.
This ASU amends Subtopic 958-605, Not-for-Profit Entities–Revenue Recognition, which didn’t previously include specific presentation or disclosure requirements for contributed nonfinancial assets, such as gifts-in-kind or in-kind donations, other than contributed services.
This amendment doesn’t change the recognition or measurement criteria for contributed nonfinancial assets. Rather, it adds presentation and disclosure requirements. This includes additional disclosure requirements for recognized contributed services.
The intent of this ASU is to increase transparency of recorded gifts-in-kind for not-for-profit entities.
What Are the Key Provisions of ASU 2020-07?
Not-for-profits will have to present contributed nonfinancial assets as a separate line item in the statement of activities—separate from contributions of cash and other financial assets such as donated securities.
Additional requirements include disclosing contributed nonfinancial assets by category—for example, disclose contributed food, clothing, and vehicles separately—in either tabular or narrative form.
For each category recognized, disclose the following:
- Qualitative information about whether the not-for-profit monetized—sold—or used the contribution during the reporting period. If used, include a description of the programs or activities which benefited.
- Policy, if one exists, for monetizing rather than using contributed nonfinancial assets
- Description of any donor-imposed restrictions associated with contributed nonfinancial assets
- Description of the valuation techniques and inputs for arriving at a fair value measure, in accordance with the requirements in Topic 820, Fair Value Measurements, at initial recognition
- The principal market, or most advantageous market, for arriving at a fair value measure if it’s a market in which a donor-imposed restriction from selling or using the contributed nonfinancial assets prohibits the recipient not-for-profit
Examples of nonfinancial assets include:
- Fixed assets, or use of fixed assets or utilities
- Materials and supplies
- Intangible assets
What Should You Look for When Measuring Fair Value?
As stated in Topic 820, the objective of fair value measurement is “to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions.”
Fair value measurement assumes the transaction to sell takes place in the principal market, and if there is none, then the most advantageous market—both defined below.
When considering the principal market, the not-for-profit must consider the market where the gift-in-kind would primarily be sold; this may differ from the organization’s location. Otherwise, the not-for-profit may inadvertently conclude the most advantageous market should be used rather than the principal market.
The update added two terms to the Accounting Standards Codification® (ASC) Master Glossary, which will become a good reference as not-for-profit entities take steps to comply with the new disclosure requirements:
- Most Advantageous Market. The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after considering transaction costs and transportation costs.
- Principal Market. The market with the greatest volume and level of activity for the asset or liability.
What Changes Does Your Organization Need to Make to Comply with ASU 2020-07?
To comply with ASU 2020-07:
- Consider adopting a policy if your organization monetizes or uses its received contributed nonfinancial assets
- Track in-kind donations and decide on appropriate categories
- Ensure a process exists to determine if there are donor restrictions on contributed nonfinancial assets
- Start early and evaluate in-kind gifts now to allow time for questions or consultation as needed; retrospective application is necessary
The ASU is effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022.
Apply them retrospectively. You may early adopt.
We’re Here to Help
If you have questions regarding the changes in ASU 2020-07, please contact your Moss Adams professional.