FASB Issues Update on Reporting of In-Kind Gifts for Nonprofits

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2020-07 for nonprofits on September 17, 2020. The update is aimed at collecting additional information to increase transparency about the nonfinancial assets that nonprofits receive, how these assets are used and the valuation process for these assets. Contributed nonfinancial assets, which are also known as “gifts in kind”, include fixed assets such as buildings, equipment and land; the use of fixed assets or utilities; materials and supplies, such as clothing, food and pharmaceuticals; intangible assets; and recognized contributed services.

The current process

Nonprofits rely on in-kind gifts to conduct their programs and activities. Before the September 17, 2020 update, revenue recognition for nonprofits required recognition and initial measure of contributions as well as disclosure of contributed services. However, specific information on and reporting of contributed nonfinancial assets was not required, leading to concerns about a lack of transparency, particularly with regard to the amount of in-kind nonfinancial assets that were received and used. There was also concern about the clarity of valuation guidance for some contributed nonfinancial assets, including those that come with donor-imposed restrictions.

What has changed

FASB states that this update provides more measurement transparency and improves financial reporting by giving new presentation and disclosure requirements when it comes to the contributed nonfinancial assets that nonprofits receive. Nonprofits:

• will now be required to present contributed nonfinancial assets as a separate line item in their statement of activities, independent of contributions of cash or other financial assets.
• must also disclose contributed nonfinancial assets recognized within that statement of activities, disaggregating the type of nonfinancial assets by category.
• will have to disclose

i) qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were used is required.
ii) the nonprofit’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
iii) a description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
iv) 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.
v) the principal or most advantageous market used to arrive at a fair value measure if it is a market in which the recipient nonprofit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.

When does the change take effect?

In its announcement about the updated standards, FASB stated that the amendments should be applied retroactively. They take effect for annual periods beginning after June 15, 2021 and interim periods with annual periods beginning after June 15, 2022. According to FASB, early adoption will be permitted.

If you would like more information about how this update affects your nonprofit, please contact your Smith and Howard advisor or fill in the form below.