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. The FASB aims to make the presentation and disclosure of gifts-in-kind (GIKs) more transparent and consistent across nonprofit accounting.
Who must adhere to the new standard?
If your nonprofit received or receives nonfinancial assets, like land, a building, or equipment, ASU 2020-07 applies to you. Additionally, if your nonprofit received contributed services, like legal, accounting or professional services, donations of office space, or the free use of equipment, the new contributed nonfinancial assets standards apply to those as well. It’s important to note, though, that the new standards do not change the accounting for GIKs, just how those contributions are presented and disclosed.
What are gifts in kind/contributed nonfinancial assets?
You may have noticed the change in terminology from “gift in kind” to “contributed nonfinancial assets”. In writing the new standards of ASU 2020-07, the FASB felt “gifts in kind” was too broad to describe the assets in the scope of the new standards, so they coined “contributed nonfinancial assets” to describe fixed assets (land, buildings, equipment, etc.), use of fixed assets or utilities, materials and supplies, intangible assets, services, and unconditional promises of those assets.
What are the changes to gift in kind/contributed nonfinancial asset presentation and disclosure?
The updated standards of ASU 2020-07 include one presentation and a number of disclosure requirements for nonprofits:
Nonprofits must now present contributed nonfinancial assets as a separate line item in the Statement of Activities, separate from contributions of cash and other financial assets. The goal of separating nonfinancial and financial contributions is to give financial statement users a clearer picture of how a nonprofit is funded. This separation shows how much funding comes from cash and how much from gifts in kind. Nonprofits can accomplish this requirement by presenting contributed nonfinancial assets in a separate row or column in the Statement of Activities. The Statement of Activities is one of the primary nonprofit financial statements that shows the revenue and expenses for a reporting period of your nonprofit.
Quantitative Disclosure Requirement
Nonprofits must now disclose a disaggregation of the amount of contributed nonfinancial assets recognized within the Statement of Activities by category that depicts the type of contributed nonfinancial assets. How you present your nonprofit’s categories is based on the activities specific to your nonprofit and your professional judgement in deciding what a financial statement user would need to understand your funding.
For every category of contributed nonfinancial assets your nonprofit recognizes, you need to disclose:
- Qualitative information about whether the contributed nonfinancial assets were either monetized or used during the reporting period. If used, you should disclose a description of the programs or other activities in which those assets were used.
- Your nonprofit’s policy (if any) about monetizing rather than using contributed nonfinancial assets. You do not need to present or disclose the intended future use of contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- A description of the valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in FASB ASC 820, Fair Value Measurement, specifically FASB ASC 820-10-50-2-(bbb) (1), at initial recognition. If your nonprofit has been receiving gifts in kind, then you have already been determining fair value and using valuation techniques and inputs. Now, you’ll be taking that information and disclosing it in the financial statements.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which your nonprofit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
How do I implement the new standards?
ASU 2020-07 does not require a specific approach a nonprofit must take to present the updated disclosures in their financial statements. If your nonprofit needs additional guidance on how to present the updated disclosures, contact the Nonprofit team at Corrigan Krause.
When do the new gift in kind standards go into effect?
The amendments in ASU 2020-07 are effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022 (i.e., fiscal year 2021-22 for June year ends; calendar year end 2022 for December year ends). They should also be applied on a retrospective basis.
Corrigan Krause can help your nonprofit accomplish the new standards
The Corrigan Krause Nonprofit team can help your nonprofit navigate the new presentation and disclosure standards put forth by the FASB. You can connect with any of the Nonprofit team members here or email firstname.lastname@example.org.